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Lifting the Corporate Veil in Cyprus – The Common Law and its Applicability in Cyprus

Lifting the Corporate Veil in Cyprus – The Common Law and its Applicability in Cyprus

By: A.G. Paphitis & Co Law Firm

In Cyprus, the lifting of the corporate veil is a legal doctrine that allows the courts to disregard the separate legal personality of a company and hold its shareholders or directors personally liable for its debts or actions.

The doctrine is generally applied in cases where the company is being used as a front or a device to avoid legal obligations or to perpetrate fraud.

There are several ways in which the corporate veil can be lifted in Cyprus, including the following: 

  • Agency: Where a company is acting as an agent of its shareholders or directors, the courts may lift the corporate veil to hold them personally liable for its actions. This was established in the case of Antaios Compania Naviera SA v Salen Rederierna AB (1985) and has been subsequently reaffirmed in several other cases;
  • Sham: Where a company is found to be a sham, the courts may disregard its separate legal personality and hold its controllers personally liable for its debts or actions. This was established in the case of Adams v Cape Industries plc (1990) and has been subsequently applied in several other cases;
  • Fraud: Where a company is being used as a device to perpetrate fraud, the courts may lift the corporate veil to hold its controllers personally liable. This was established in the case of Gilford Motor Co Ltd v Horne (1933) and it has been subsequently reaffirmed in several other cases.
  • Group of Companies: In some cases, the courts may disregard the separate legal personality of a subsidiary company if it is found to be a mere agent or instrumentality of its parent company. This was established in the case of DHN Food Distributors Ltd v Tower Hamlets London Borough Council (1976) and it has been subsequently applied in several other cases.

It is important to note that the courts in Cyprus will only lift the corporate veil in exceptional circumstances, where there is clear evidence of abuse or wrongdoing. The decision to lift the veil is made on a case-by-case basis, and the burden of proof rests with the party seeking to lift the veil.

Here are some key Cyprus cases related to the lifting of the corporate veil: 

  • In a case before the Supreme Court of Cyprus it was held that the corporate veil could be lifted where a company was being used as a front for illegal activities or to avoid legal obligations. The court found that the defendant had used his company to avoid paying a debt owed to the plaintiff, and therefore lifted the veil to hold him personally liable for the debt.
  • In a case before the District Court of Nicosia it was held that the corporate veil could be lifted where a company was being used as an instrument of fraud. The court found that the defendant had used his company to perpetrate a fraudulent scheme, and therefore lifted the veil to hold him personally liable for the damages.
  • In another more recent case before the Supreme Court of Cyprus it was held that the corporate veil could be lifted where a company was being used as an instrument of fraud or to avoid legal obligations. The court found that the defendant had used his company to avoid paying a debt owed to the plaintiff, and therefore lifted the veil to hold him personally liable for the debt.
  • In a more recent case before the District Court of Nicosia it was held that the corporate veil could be lifted where a company was acting as an agent of its controllers. The court found that the defendant had used his company as an agent to enter into a contract with the plaintiff with an intention to defraud the plaintiff, and therefore lifted the veil to hold him personally liable for the contract.

These cases demonstrate that the courts in Cyprus will only lift the corporate veil in exceptional circumstances, where there is clear evidence of abuse or wrongdoing. It is important to seek the advice of one of our lawyers with expertise in this area if you believe the corporate veil should be lifted in your situation.

In conclusion, lifting the corporate veil is a complex legal doctrine that requires a thorough understanding of company law and case law precedents. If you are facing a situation where you believe the corporate veil should be lifted, it is advisable to seek our advice.

You may email us directly at angelos.paphitis@agplaw.com or at agp@agplaw.com with all of your enquiries which will be treated with the outmost discretion and confidentiality.

The information provided by A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.






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Tags: Corporate Law

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