A comparative empirical study of piercing corporation`s veil in the

A comparative empirical study of piercing corporation’s veil in the
United States and Taiwan
I Tzu Su＊
Department of Law, National Chung-Hsing University, Taichung, Taiwan
Piercing corporation’s veil was originally from English equity law, its
purpose was to protect creditor’s rights and defeat injustice. Globalization
promotes the convergence of corporate law. More and more civil law countries
import common law doctrines to their corporate law system. In part I, this paper
provides an overview of piercing the corporation’s veil from a comparative
perspective. In part II, this paper briefly introduce the empirical study in the
United States. In part III, this paper analyze piercing corporation’s veil in Taiwan
empirically and legally. Piercing corporation’s veil was codified in 2012, this
paper find that there are more cases to pierce the corporate veil in one man
company than any other cases. In part IV this paper concludes that codification
of piercing corporation’s veil helps court to apply it more clearly but may
increase some hurdle as well.
I.
Introduction
Piercing corporation’s veil was from equity law originally to protect creditor’s
rights and to prevent the abuse of “limited liability “ and “ legal entity”. Corporate
law has some rules to protect creditor’s right so why do we need the exception to
disregard the corporate form? There has been debated that piercing corporate veil is a
doctrine or not in the Anglo American law, and since the piercing corporation’s
veil doctrine was not coded in Taiwan before 2012, the Taiwanese court mostly
denied it. However, Taiwanese legislature adopted the piercing corporation’s veil into
the corporate law in 2012 by amended the section 154.1 Can this law importing
achieve its goal to protect the creditor’s right? How will this influence the court in
Taiwan? This paper will introduce the United States empirical study first, then
analyze the Taiwanese cases empirically and compare it with the United States.
II.
Piercing the Corporation’s Veil in the United States
A. Empirical study
Thompson initiated the empirical study in 1991.2 His study shows that piercing
occurred in the closed held company not publicly held ones. Courts are more willing
＊ Assistant Professor of Law, National Chung-Hsin University, L.L.B., National Cheng-Chi University;
LL.M. ,Washington University in St.Louis, J.S.D., Washington University in St.Louis.
1
Legislative Yuan Gazette, Vol.102, issue 7, p.664, 2012 See Robert B. Thompson, Piercing the Corporate Veil: An Empirical Study, 76 CORNELL L. REV.
1036, at 1058 (1991)
2
to pierce the veil to an individual shareholder than other corporation. There are 779
contract cases and 226 tort cases and the piercing rate in contract cases are 42 percent
and 31 percent in tort cases.3 The courts are less willing to pierce the veil in tort
cases.
Matheson conducted a research in Parent-Subsidiary company from
1990-2008.
4
After analying 360 cases, there are ten reasons for courts to pierce the
parent-subsidiary company’s viel: parent control/dominance;
fraud/misrepresentation ;overlap; commingling of funds undercapitalization;
unfairness/ injustice; directors, officers, or records non-existent); directors or officers
non-functioning; combined non-existence and non-functioning of directors and
officers , and assumption of risk.5
Oh presented another empirical research in 2010 ,6 the data was bigger and
broader than the Thompson’s.7 Oh argued that not just the type of actions will
3
4
Thompson, supra note 2, at 1047-48
John H. Matheson, The Modern Law of Corporate Groups: An Empirical Study of Piercing the Corporate Veil
in the Parent-Subsidiary Context, 87 N.C. L. REV. 1091, 1094 (2009)
5
6
7
Id at 1129-33.
Peter M. Oh, Veil Piercing, 89 Texas L. REV. 81, 84 (2010)
Oh examines veil-piercing cases in Westlaw from 1658 up to and including 2006.
influence the piercing but also the distinction between voluntary and involuntary
creditors.8 In Oh’s finding, the piercing rate in both federal and state courts is almost
50% and “only the veil of close corporations whose potential for consolidated
shareholding permits a requisite finding of control or domination.” He also found that
“the most successful civil veil-piercing claims are grounded in Fraud or supported by
specific evidence of fraud or misrepresentation.”9 Different than Thompson’s study,
Oh found that more veil-piercing claims in tort than contract.10
III. Piercing corporate veil in Taiwan
A. Empirical Study
The first piercing veil empirical study was done by Chang and Chu in 2009,
they found out that : (1) more veil-piercing claims in contract than tort, contract
cliams are 8 times than tort.; (2) the rate of a person or entity seeking the piercing is
1.6:1. (3) person seeks the piercing all failed. (4) all companies are closed held
company.(5) the Supreme court do not apply the piercing corporation’s veil , therefore
most courts do not apply this doctrine either.
11
a. Methodology
8
Oh, supra note 6, at 89
Id.
10
Id.
11
Cindy Chang & De-Fang Chu, The past, present and future of the piercing corporation’s law and
disregarded legal entity, Corporate Law Theory and Practice, 78-107, (2010)
9
This paper uses the similiar methodology as the Thompsons. Becuase there was
another empirical research done by 200912, this paper includes all cases from Taiwan
juducial yuan website, from 2009 to 2014 concerning the issue of piercing the
corporation’s veil. Each case complied: year; court; substance of the claim (contract,
tort, or a specific statute); whether a person or an entity was behind the corporation’s
veil; the person or entity seeking the piercing. Whether the court apply the piercing
the corporation’s veil or not.
b. Empirical result
This research used “ piercing the corporate veil” or/and “disregard of the
corporate entity ” as key words, searched cases from 2009 November to 2014 March
and there are totally 34 cases. First, comparing to the previous empirical study by
Chang and Chu13, there were only 13 cases by 2010, but there are 34 cases from
2010-2014. It shows more cases use piercing corporate veil. Second, among the 34
cases, there are 16 cases the court admit the piercing corporate veil doctrine,
approximately 47%. Third, 25 cases are contract cases and 7 are tort cases. Contract
cases is about 73% and it shows that courts are more willing to piercing the corporate
veil in contract cases then tort cases. This result is as same as the famous Thompson
12
13
Id.
Id. empirical study in 1991.
14
However, there are some difference to the Thompson
study, first, the piercing rate is 50% in natural person claims but Only 8% in legal
entity claims. It might be that all pierced companies are one-person company, the only
shareholder who’s also the only director in the company. The courts are more willing
to pierce the veil in one-person company.
Second, there are some public held
companies not just close corporations. Many cases are related to the Lehmen brother
enterprise, it also shows that how difficult to pierce the multinational enterprise’s veil.
Third, it’s all natural person behind the corporate veil in all 34 cases. The Taiwanese
courts pierce the corporate veil more often to get to an individual shareholder than to
reach another corporation.
In court level, the Supreme court has applied the piercing corporate veil after
the codification. The high courts seem not willing to piercing the corporate veil than
Chang and Chun’s study in 2010.
B. Company law section 154 issues
The section 154 states” if a shareholder abuses the company’s status as a
legal entity and thus causes the company to bear specific debts and to be apparently
difficult for the company to pay such debts, and if such abuse is of a severe nature, the
14
See, Thompson, supra note 2, at 1058
shareholder shall, if necessary, be liable for the debts.” This amendment has many
uncertain elements that might make it more difficult to pierce the corporate. What is
“ specific debts”? or ” apparently difficult for the company to pay such debts”?
Section 154 was in the Company Limited by Shares chapter so it would be
questionable that can the one-man company suitable for it. Some scholars worried
about that the codification might make it more difficult for the court to pierce the
corporate veil15, unfortunately, a recent case showed that this worry was not a fiction.
In higher court 99 number 240 decision, although the court admits there is piercing
the corporate veil in Taiwan, but the appellant can not prove the company was
“apparently difficult to pay such debts”, and the “abuse is of a severe nature”.
Therefore, the court did not pierce the corporate veil. As Liu’s prediction in 200616,
even if the legislature is willing to codify the piercing the corporate veil, it will lack a
clear substantive indication for the courts.
IV. Conclusion
The long debate of whether Taiwanese courts should apply the piercing the
corporation’s veil doctrine or not, finally set in stone after the 2012 codification. It is
a positive development to Taiwanese corporate law. However, there are still some
15
Ling-Jia Hung, From American Law to view the practice of Piercing Corporation’s Veil in Taiwan, 8
Chung-Chen Economics law review, at 23 (2014)
16
Lien-Yu Liu, The practice of Piercing Corporation’s veil and disregarded legal entity in Taiwan, in
corporation law theory and cases study (4), at 142 (2006)
challenges after the codification. Our empirical data shows that all pierced companies
are limited companies, but section 154 was in the company by shares chapter not the
limited company. Will this codification make the piercing more difficult than before?
Comparing to the Anglo-American piercing the corporation’s veil, the Taiwanese law
only requires the shareholder to be liable but the controlling shareholders nor
affiliated companies. It seems narrower than the Anglo-American piercing doctrine.