| Piercing the corporate veil system has been introduced into our country’s legalsystem when the Company Act was revised in2005, mainly stated as Article20,paragraph3. Due to the introduction by our legislature was only on principle, andseven years past, the judicial interpretation has not made clear guidelines on thespecific application of this system yet, which results that the judicial practice is stillconfused on how to apply the system and the jurisdictions all over the country don’tshare a unified criterion. At the same time, in our country, the phenomenon of smallcompanies closing door and avoiding debts is still very prominent and the interests ofcreditors lacks effective protection, which needs the Company law to further improveon the piercing the corporate veil system so as to effectively curb such improperbehavior.This paper, through a comparative study in American law, English law, Germanlaw, Japan and South Korea law on the latest developments of the piercing thecorporate veil system, and through an inductive analysis of the current judicialpractice and theoretical study of our country, combined with the currently effectivelegal system of our state, has made a study and reflection on the determinationcriterion of acts by which shareholders abuse the independent personality of thecompany and limited liability, which is much disputed by the academic and judicialworld, for the purpose of providing a reference for the Supreme Court to issue therelevant judicial interpretation later.The study arrives at the following conclusion: the behavior of shareholder’sabuse the independent legal person status of company and limited liability under theArticle20, paragraph3, of Company Act specifically referring to the following acts:(a) shareholder misrepresents company’s capital and property capability, or conceals the real condition of the company property, using the corporate personality toengage in fraud, resulting in the loss of creditors;(b) the shareholders and thecompany’s property are commingled in general, impossible to distinguish out theproperty of the company (including the mix between parent and subsidiary companies,and mix among affiliated companies);(c) shareholders sucking up the assets of thecompany through a variety of ways such as in the form of a bonus or wages payment,loans, reimbursement of personal expenses, or transfer of the assets of the companythrough affiliated transactions and other means to avoid debts payment, or willing tointerfere with the normal operations of the company at the expense of leading thecompany into bankruptcy (including the detention of company funds, giving up thecompany claims, providing collateral free of charge, depriving the company’s businessopportunities, etc.), which causes the company unable to pay the debt;(d) whencompany is insolvent, shareholders avoids the liquidation procedure, or the companyasset is not clear or lost, which causes the liquidation is impossible;(e) subsidiary isoperated in an unfair way, such as setting the terms of the transaction between theparent company and its subsidiaries by agreeing that profits accumulated in the parentcompany, losses on subsidiaries;(f) the subsidiary and the parent company engage inthe essential part of an overall same business operations, and subsidiaries lack ofcapital;(7) a single business group of companies is operated by deliberately dividedinto a number of companies, and members of the divided companies’ capital isinadequate and in insolvency;(8) other violations of the principle of good faith andfairness, by using the independent personality of company to damage the interests ofcreditors."Inadequate Capital" herein refers to the company’s capital relative to therisk borne by the company business and debt is obviously insufficient, and thecompany’s policy of insurance amount can be used as part of the company’s capital.Paragraph (7) of the form of liability is that all the property of the companies withinthe Group shall be liable for the debt of any member company. |
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