The Research On Reverse Piercing Of The Corporate Veil System

The article 20 and article 63 of the Company Law of China have stipulated the principle of piercing the corporate veil,it plays a significant role in regulating the abuse of corporate independent personality and the behavior of limited liability of shareholders.However,with the development of economic diversification,the abuse of corporate independent personality to avoid debt increases gradually and shows a tendency to complication,we need to detail the rules of piercing veil system and establish the reverse piercing of the corporate veil system.The limitations of executive procedure of equity?creditor's right of revocation?agency system?property preservation system decide that they can not replace the functions of reverse piercing of the corporate veil.There are three applicable ways which some courts try to use in reverse piercing of the corporate veil in court judgments:expanding the explanation of the article 20 of the Company Law?directly using the article 3 of the Company Law?using the principles of civil law,these three ways all lack legal basis and there are some limitations meanwhile.In the protection of interests,firstly we can establish capital exemption mechanism to protect the interests of innocent shareholders when using reverse piercing of the corporate veil,in the meanwhile,the innocent shareholders can initiate shareholder representative lawsuits?direct litigation for the compensation for damages;Secondly,secured company creditors have the right of priority to get compensation from the secured property.Although the debt settlement of the right subjects may weaken the debt settlement of the unsecured corporate creditors when the company is insolvent to enter bankruptcy proceedings,this situation is pervasive,it is not unique in reverse piercing of the corporate veil.In the construction of system,reverse piercing of the corporate veil fundamentally subverts the independent personality which is the basis of the corporation,we should limit the application conditions in practice.Firstly the scope of application should be strictly limited.The scope of the subject is limited to one person company,parent subsidiary company and sister company,the scope of liability shall be the responsibility of all the property of the company,but subject to the entire interests of the shareholders or the actual controllers in the company;Secondly the applicable conditions should be strictly limited.We should consider the creditors of shareholders or the actual controllers as the right subjects,shareholders or actual controllers?the company as the main subjects of responsibility,evasion of legal obligation?evasion of contractual obligation?confusion of personality as three behavioral elements,the consequence elements consist of two parts:abusing the corporate independent personality results in the shareholders' or the actual controllers' interests damage,there is a causal relationship between the damage of shareholders' creditors and the abusing behavior of shareholders;Finally the procedural rules should be strictly limited.We would better take the "two-stage" method about allocation of burden of proof,the creditors bear the initial burden of proof in the first place,then the shareholders or actual controllers bear the burden of proof about behaviors,in the execution stage we can not directly add the company as executed person,and the right subjects can claim that the shareholders shall be liable for supplementary liability to the company debt which cannot be repaid within the investment which wasn't contributed.We should provide legal basis of entities and procedures about reverse piercing of the corporate veil with three ways:amending article 20 and article 63 of the Company Law?increasing the corresponding judicial interpretation and enacting case guidance.