A Study On Application Of Piercing The Corporate Veil Of Parent-subsidiary

Most of the modern enterprise groups adopt the form of the organizational structure of parent and subsidiary companies. However, the characteristics of parent and subsidiary companies break the interest balance of traditional company among shareholders, company and creditors. The creditors' interests of a subsidiary can hardly be guaranteed. So the strong status of parent company must be regulated. China's newly amended Company Law has introduced the system of piercing the corporate veil into judicial practice in China, which is a post-relief legal system whose aims are to prevent parent company's abuse of an independent legal personality and protect the interests of creditors or the public interest community. How to apply the system of piercing the corporate veil for those parent companies who abuse their independent legal personality? This question not only involves legislative issues relating to the Companies Act, but is also involved in the application of procedural law.The independent legal personality and the limited liability of corporate shareholders are the basis of the theoretical system of company law. Piercing the corporate veil is a system which corrects and improves an independent corporate personality. The application of piercing the corporate veil must be careful not to shake the basis of company law. The case which applies the system of piercing the corporate veil usually is a tort case. The application must be in strict accordance with Company Law which regulates the element of subject, the element of acts, the element of damage, the causal relationship and the fault element under the specific circumstances of the case study. Applying the system of piercing the corporate veil in specific cases will inevitably involve procedural issues. Normally, the creditors of the company who undertake the actual damages should be subject to seek court to adjudge denying personality. The parent company who abuses of the independent personality should be as a defendant before the end of the debate in the Court of First Instance. If the parties make an application for the application of this system in the appeal or second stage, the people's court can only mediate the case under the premise of voluntary. If the mediation fails, the court should not give a direct ruling, but remand a lawsuit for a new trial. If the parties ask to apply the system in the implementation stage, the people's court shall inform the parties to a separate prosecution. In terms of the burden of proof, as long as the creditor has the initial proof, the burden of proof will be "upside down" to the parent company as a defendant who proves that the relationship between the subsidiary and the parent company is justified in order to avoid undertaking direct responsibility and the adverse results for the subsidiary's creditors.