The fall of the corporate veil - when company offences can cause personal problems

There have always been exceptions to the protection offered by the corporate veil. The modern regulatory system, however, has created a wide variety of corporate offences for which senior company officials can find themselves liable. Anybody with senior decision making power within a company should know how and when they could be personally facing potential criminal charges.

Usually, personal liability for corporate offences stems from three key words - Consent, Connivance or Neglect. They are best explained with reference to an example. Imagine a company fails to maintain a key piece of machinery, which fails dramatically and breaks the arm of an employee. The Company is likely to have breached Section 2 of the Health and Safety at Work Act, and committed a criminal offence. Personal liability for directors could arise in the following circumstances: 

  • Consent is relatively simple. If a director knew of the failing machinery, and consciously instructed the maintenance department to cancel maintenance plans (say, in the hope of saving costs), the director would be likely to face personal criminal charges. This situation rarely arises due to the need for a conscious and deliberate act, and is less of a concern for reasonable managers.
  • Connivance is more complex, and covers situations where a director turns a blind eye to a problem. If our example director knew that maintenance had been cancelled (and chose not to correct the situation), they could again find themselves personally liable for their tacit approval.
  • Neglect, however, is the most likely trap for an otherwise watchful director. If a director fails to meet a reasonable standard of care, they can find themselves personally liable, even if they have tried their best. If our director simply failed to arrange inspections (or arranged yearly inspection when monthly inspections were required for a reasonable level of safety), personally liability could become a threat.

Neglect can be a difficult trap to avoid for a senior manager with a wide range of duties and obligations. Whilst health and safety has been used as an example, personal liability can arise from a wide array of regulatory offences, including:

  • Environmental offences
  • Bribery and Fraud;
  • Financial regulation (including asset-freezing orders); and
  • Sector specific regulation (for example, the Scrap Metal Dealers Act 2013).

Likewise, liability is not limited solely to directors. Again using health and safety as an example, any "senior manager" is potentially exposed to liability under the relevant statute.

In summary senior officials can face a significant risk of personal liability, potentially in areas outside their personal expertise. Senior managers should ensure they are up to date with their regulatory responsibilities, and put in place practical action to safeguard both their Company and themselves.


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