On The Outsider Reverse Piercing Of The Corporate Veil System

Article 20 of China's Company Law stipulates a corporate legal personality denial system(piercing the corporate veil).When shareholders abuse the company's independent legal personality,in order to protect the rights of the company's creditors,the corporate veil can be pierced and thus shareholders are jointly and severally liable for the company's related debts.Although the article did not mention the protection of the rights and interests of a third party's creditors,some judges allow to pierce the corporate veil to protect some shareholders' creditors,holding that the protection of a third party's creditors is the proper meaning of the article while some judges hold that the law can be explained extensively.On the contrary,other judges believe that the subject of rights specified in Article 20 is only corporate creditors and a third party's creditors are not included.Therefore,this article cannot be used to protect the rights and interests of any third party's creditors.Considering that the research on the reverse piercing of the corporate's veil will help to resolve the dilemma encountered in China's judicial practice and improve the predictability of the judgement of corporate legal personality abuse.The research object of this dissertation is reverse piercing of the corporate's veil system and tries to answer the following questions: 1.Does Article 20 of Company Law provide the institutional basis for reverse piercing the corporate veil? 2.How do courts in China understand the relationship between the reverse piercing system and the traditional piercing system stipulated in Article 20 of Company Law? 3.Is it necessary for China to establish a reverse piercing system? 4.In the case of reverse piercing,what's the order of the realization of legitimate rights and interests of a third-party creditor,innocent shareholders and corporate creditors?This article conducts an empirical study and finds out that there aren't many cases of reverse piercing in China,and the number of cases that occur each year is kept in single digits.In the past 6 years,judges still had different attitudes towards the application of reverse piercing under the existing law in China.The judges' attitudes can be summarized as: recognition,non-recognition and no comments.The author reaches the following conclusion through the methods of legal interpretation that the current legal system,including Article 20 of Company Law does not provide applicable laws for outsiders to pierce the veil of a company,which is a legal loophole.Therefore,it's necessary to construct a reverse piercing system at the legislative level.The dissertation also analyzes the subjective elements,behavioral elements and result elements that should be included in the establishment of a reverse piercing system.The author believes that the subject of right should be the shareholder's creditor,and the subject of obligation should be the company;in terms of behavioral elements,the shareholder abuses the company's independent personality which results in the legal line of demarcation between the corporation owner and the corporation becomes virtually nonexistent.The author states further that there is no need to set up a special interest coordination mechanism for the reverse piercing system.With regard to the order of realization of the rights of the shareholder's creditors,innocent shareholders and corporate creditors,the orders of realization of the rights of the shareholder's creditors and of cooperate creditors are the same.Corporate creditors' rights should be realized ahead of innocent shareholders.No special protection is needed for innocent shareholders.