The Case Against 'Outsider Reverse' Veil Piercing in Company Law
27 Pages Posted: 8 Feb 2010 Last revised: 31 Jan 2012
Date Written: February 3, 2010
For many years, jurists have struggled to rationalise the common law rules which describe the circumstances in which it is justifiable to eschew the principle of separate legal personality which posits that a company is distinct from its members and managers. This is not particularly surprising. The central argument of this article is that in each of the cases where the piercing the veil doctrine has been considered by the courts, claimants have been seeking to harness it as a means of achieving three distinct objectives: first, setting aside the entity shielding feature of organisational law in order to permit the personal or business creditors of the owners (or beneficial owners) or directors (including de facto or shadow directors) of a registered company to seize the assets of the company in priority to the company’s creditors (‘outsider reverse veil piercing’); secondly, disregarding the institution of limited liability as a means of enabling the creditors of a registered company to seek recourse against the personal assets of the company’s owners (or beneficial owners) or directors in precedence to the personal or business creditors of that owner or director; finally, setting aside the separate legal personality of a registered company stricto sensu as a means of achieving an objective unconnected to the foregoing two factors. Once the implications of this are properly understood, an argument emerges which posits that it may be generally undesirable from a doctrinal perspective to permit the common law to set aside the entity shielding function of corporate law and that the application of the doctrine should be confined within limited bounds.
Keywords: Law, Company Law, Corporate Law, Separate Legal Personality, Limited Liability, Entity Shielding, Piercing the Corporate Veil
JEL Classification: K10, K20, K22, L20, M10, N83, N84
Suggested Citation: Suggested Citation