Piercing the ‘Corporate Veil’ — Pakistan
In its Spring newsletter, CONSULEGIS International Litigation & Arbitration Specialist Group presented an abbreviated overview of 23 jurisdictions’ legal views on the topic of when courts may disregard a corporate entity to make owners of the entity personally liable for the debts of the entity—what is commonly thought of as “piercing the corporate veil”.
Among the contributors to writing on the topic are five legal advisors from Horizons addressing six countries’ legal points of view, including China, Korea (DPRK), Mongolia, Qatar, Russia and Pakistan. In this post, we offer the entry on Pakistan.
Khurram Ibrahim Baig | Legal | Horizons Pakistan
The question of when courts may disregard corporate structures to make owners personally liable in Pakistan calls for a basic two-part explanation. Firstly, addressing liabilities of an owner/director at the international level or those who are nationals from other states; secondly, looking at liabilities for owners/directors at the domestic level as well as dictum lay down by the apex court, the August Supreme Court of Pakistan.
A company is a legal entity as recognised in all world legal systems and owners or directors are not liable personally regarding any loss. However, being a trustee of a company’s capital and finances, the directors are under obligation to perform their duties honestly and according to one’s educational level and skills experience. Circumstances, where a director may be found personally liable, are in the event of dishonesty, negligence, acting beyond their powers and/or breach of trust.
A private limited company is also a legal entity under Pakistan law, registered under the Company Ordinance 1984 in Security and Exchange Commission of Pakistan. The Honourable Justice of the High Court has the authority to resolve any corporate disputes. Pakistan has adopted international theory regarding liabilities of owners and directors: that an owner/director is not personally responsible for any act of a company. However, both are answerable before the concerned authority in the event of a dishonest act falling under section 194 of Company Ordinance 1984.
The Company is a separate legal entity, hence liability of a company is not liability of its officers, directors or shareholders. However, if an owner or director acts in any way which is against the conditions mentioned in the Company Ordinance 1984, as well as exemptions determined by courts of law in Pakistan, either or will not only be liable, but also face any investigation conducted by the National Accountability Bureau or any other law enforcement agency in Pakistan.
Based on case law and the provisions of the Company Ordinance 1984, the owner/director of Private Limited Company is not responsible for any act of a company. They will face all civil and criminal liabilities when they cross the limits provided in the Company Ordinance 1984 or any additional dictum laid down by the High Courts of Provinces and the Honourable Supreme Court of Pakistan. The most typical case is the interference in the daily routine, being it the cause of fraudulent bankruptcy if direct evidence is validly submitted to the Court.
Khurram Ibrahim Baig is Horizons Pakistan desk head. If you would like to talk with a specialist about corporate liability in Pakistan or other countries, email us and we’ll have a Horizons professional contact you.