The Limits of Separate Legal Personality: When Those Running a Company Can Be Held Personally Liable for Losses Caused to Third Parties Outside of the Company

Practitioners are commonly faced with clients who are the victims of some wrongdoing committed by persons running a company. Often in such cases, compared with those controlling the company who may have done well out of it, the company itself has no or very little assets to go after. The question arises whether those running the company can be sued personally for their role in that wrongdoing instead or as well as the company.

Many are deterred from contemplating such personal claims, believing that the company’s separate legal personality alleviates its directors of personal liability. It may be surprising to learn that there is no such immunity from personal liability provided by separate legal personality. A director of a company may be liable to a third party wherever an agent might be liable to a third party under the ordinary law of agency. That will mean that an agent will not be liable on his principal’s contract, and he cannot be sued for procuring a breach of contract unless he acts in bad faith to his principal. But outside of that contractual context, those controlling a company can be sued personally for their role in committing any wrongdoing harming an outsider. The question is one about the extent of their participation and whether it can be established that they committed the tort or other actionable wrong or commissioned it so as to give rise to liability as joint tortfeasor.

This book considers the limits of the protection afforded by separate legal personality and explores the many different situations in which those in control of a company can be held liable to third parties. It does so in a practical and accessible way, covering the wide array of causes of action and relevant principles and considering also the relevant statute that imposes legal liability.