Non-Domestic Rates – Court of Appeal Refuses to Pierce the Corporate Veil

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The corporate veil remains a powerful barrier and judges will only countenance piercing it in exceptional circumstances. The Court of Appeal made that point in ruling that liabilities to non-domestic rates (NDRs) were successfully avoided by granting leases to single purpose corporate vehicles (SPVs).

Property companies in two local authority areas had granted leases of mostly empty properties to SPVs which had no assets or liabilities and which were subsequently either placed in voluntary liquidation or struck off the register and dissolved due to their dormancy. There was no dispute that the leases were part of an organised scheme to avoid payment of NDRs. Such schemes were in widespread use and there were more than 50 similar cases pending, involving about £10 million in NDRs.

After the local authorities launched proceedings against the property companies with a view to recovering unpaid NDRs, a judge decided, following a preliminary hearing, that it was arguable that the corporate veil in respect of the SPVs should be pierced. However, he ruled it unarguable that the leases should be disregarded. The local authorities and the companies each appealed against those parts of the judge’s ruling that were adverse to their cases.

The local authorities argued that the SPVs were interposed solely for the improper purpose of avoiding an existing or imminent charge to NDRs. However, in ruling on the matter, the Court noted the judge’s conclusion that the leases were not shams. In those circumstances, it could not be said that the property companies had deliberately evaded NDRs by interposing SPVs under their control.

Observing that it was unsurprising that the circumstances in which the corporate veil can be pierced are highly circumscribed, the Court noted that the use of companies to avoid NDRs or other taxes could hardly be described as rare or novel. Once each lease was executed, the right to legal possession of the properties passed to the SPVs, together with the liability to pay NDRs. In those circumstances, the local authorities’ claims had no realistic prospect of success and were struck out in their entirety.

Rossendale Borough Council v Hurstwood Properties (A) Limited & ors


Rex Cowell