Powers -v- Greymountain Management Ltd (in Liquidation) Part 2 of the Exceptional Case Update [2022] IEHC 599 discusses the High Court’s decision holding two shadow directors personally liable in a multinational fraud case.
High Court decision to break through corporate veil
In a previous article (available here), we discussed how the High Court ruled that an Irish company, Greymountain Management Ltd (“gray mountain), was used as a means of fraud with the sole purpose of defrauding unsuspecting individuals of their money through a fictitious illegal binary options trading scheme. It was to break through Greymountain’s corporate veil on the grounds that other investors had been deprived of funds invested in the scheme. Mr. Powers sought an order to hold four of his people, including two shadow directors, personally responsible for wrongdoings committed by the company.
Shadow directors under Irish company law
Under Irish company law, a shadow director is a person (not formally appointed as a director, not necessarily appointed as a director) who is accustomed to act on the direction or direction of a director of the company. There is none).
Companies Act 2014 (“activity”) provides that shadow directors shall be treated in all respects as directors of the company and, as such, may be held liable for certain sanctions normally reserved for directors.
The Gray Mountain lawsuit is a careful reminder that in situations where justice demands the lifting of corporate veils, shadow directors can be personally held accountable.
Overseer of Shadows of Gray Mountain
The court spent time analyzing the binary options scam and concluded from the evidence to date that the shadow directors acted as controllers or “masterminds” behind the fraudulent scheme. The shadow directors completely waived their duties and handed over the management of the company to the shadow directors.
Unlike passive directors (who were unwitting parties to the fraudulent scheme), shadow directors benefited directly from the scheme. Expert evidence in court showed that shadow directors siphoned investors’ money and redirected it to their own bank accounts via third-party “binary options” websites.
Twomey J indicates that Irish courts will consider breaking the corporate veil in situations related to fraud, misuse of funds, siphoning of large sums of money by directors, negligence, impropriety and misrepresentation. He also highlighted a number of authoritarian comments from previous High Court precedents. He saw no reason, in this case, to distinguish between imposing liability on the company’s shadow directors (against the directors) when the conditions for breaking through the company’s veil were met.
On this basis, the court reasoned that justice required the lifting of the veil to make the shadow director personally accountable to Mr. Powers. It was an affront to justice if the doctrine shielded the shadow director from personal liability in the situation.
Conclusion
In a persuasive conclusion, Twomey J argued that without imposing personal liability on shadow directors, individuals could use Irish companies to commit massive international fraud and avoid personal liability. expressed concern that it would send a message that it might Legally, it was the company, not the individual, that committed the fraud.
The lawsuit sends a strong message that courts will not allow Irish companies to shield themselves from wrongdoing.
