Piercing the Corporate Veil: A Comparative Analysis of Common and Civil Law Approaches

SIAR-Global Journal of Social Sciences & Legal Review (GJSSLR) www.siarpublications.org [email protected] Vol. 1 Issue 1 Sept.-Oct. 2025 16 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. Piercing the Corporate Veil: A Comparative Analysis of Common and Civil Law Approaches Abdullahi Yusuf Abdullahi, Ph. D Senior Lecturer, Faculty of Law, Niger Delta University, Wilberforce Island, Bayelsa State, Nigeria. [email protected] Abstract The doctrine of corporate personality established in Salomon v Salomon & Co. remains the cornerstone of company law, ensuring that a corporation is a distinct legal entity separate from its members. However, the rigidity of this principle often yields to equitable and public policy considerations through the judicial and statutory device of “piercing” the veil of a company. This paper undertakes a comparative analysis of veil-piercing mechanisms across countries rooted in both common-law and civil-law frameworks, specifically Nigeria, the United States, China, and Germany. It examines the theoretical foundations, judicial approaches, and statutory interventions that guide courts in disregarding corporate personality to hold individuals behind the company personally liable. The doctrinal research method was used. Reliance was placed on primary sources such as companies’ Acts in jurisdictions in focus and relevant case law. Secondary sources such as journals both online and offline were used in the research. It also employs a comparative functional approach in analysing the applicable law in the selected jurisdictions. The study finds that while common law jurisdictions adopt a largely case-driven and discretionary approach anchored on fraud, facade, and agency principles, civil law jurisdictions apply more codified and predictable standards grounded in abuse of rights and corporate misuse doctrines. By mapping these divergent yet converging trends, the paper argues that veil piercing reflects each jurisdiction’s balance between corporate autonomy and accountability. It concludes that Nigeria could benefit from a hybrid model that combines the predictability of civil law systems with the adaptability of common law equity, ensuring corporate responsibility without undermining legitimate enterprise. Key words: Corporate Personality, Veil Piercing, Limited Liability, Comparative Company Law, Judicial Accountability 1. Introduction The concept of a company as a separate entity from its stockholders is commonly accepted in many common law and civil law countries. In general, courts are hesitant to stray from this fundamental aspect of corporate law. Nevertheless, the concept of a separate personality is not unqualified. The courts have the authority to deviate from it in both common and civil law nations. When courts refuse to give effect to distinct personality, it is commonly said that they "pierce" or "lift" the 17 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. corporate veil. Usually, but not always, this will lead to someone else being held responsible, possibly in addition to the corporate vehicle. 1 When the distinct identity of the company is set aside or responsibility is increased, it is commonly claimed that the courts are penetrating the veil of incorporation. This enables the courts to look beyond the business entity to the individuals directing it who may subsequently be held personally liable for debts that were earlier exclusively due to the company. 2 In other words, common law courts have determined that there are implicit restrictions to this separateness by interpreting corporation legislation as creating companies with distinct personality and shareholders with restricted culpability. 3 These boundaries are determined by taking into account the court's interpretation of the legislative objective behind such legislation, which is to provide an organizational framework that enables business transactions in order to achieve desirable social and economic benefits. 4 Although there are many different ways that jurisdictions manage the corporate structure, most of them share limited liability and independent legal identity. A firm's legal rights and liabilities are distinct from those of its members when it has separate legal personality. Limiting those shareholders' liability to the amount of their actual or promised investment and any potential payout is a corollary effect of liability limitation. 5 As a result, potentially harmful behaviour may be prescribed and practiced without repercussions, and the victims of such behaviour are often left without appropriate remedy. 6 Piercing the corporate veil, then, refers to the judicially imposed exception to the notions of separate legal personality and limited liability, whereby courts disregard the company's separateness and hold a shareholder responsible for the company's actions as if they were their own. 7 Depending on the jurisdiction, the Court will do so in different situations. The states that were looked at were chosen because they are all economic giants with significant investment and thriving corporate practices. The extent and justification of veil piercing concepts * Dr. A. Y. Abdullahi, Senior Lecturer, Faculty of Law, Niger Delta University Wilberforce Island, Bayelsa State, Nigeria. a[email protected] 1 Cheng-Han Tan & Others “Piercing the Corporate Veil: Historical, Theoretical and Comparative Perspectives” 16 Berkely Bus.L.J.140 (2019) available online @https://scholarship.law.berkeley.edu/bblj last visited on 1/3/25. 2 ibid,151. 3 Tan Cheng-Han, Veil Piercing: A Fresh Start, J. BUS. L. 20, 29 (2015). 4 First National City Bank v. Banco Para El Commercio Exterior de Cuba, 462 U.S. 611,(1983). 5 Mikiel Collega & Simon Borg in “Piercing the Corporate Veil: Greening Companies’ Governance and Shareholders Activism” 7 IUCNAEL EJournal available online at https://www.iucnael.org/pdf last visited on 12/02/25. 6 See Priest v. W.R. Grace & Co No. DV-99-4, (Mont. 11th Dist. 1999). 7 RB Thompson, ‘Piercing the Corporate Veil: An Empirical Study’, (1991) 76 Cornell L Review 1036 18 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. in four jurisdictions such as Nigeria, the United States, China, and Germany, representing a combination of common and civil law traditions are critically examined in this essay. It looks into how each system strikes a balance between corporate independence and accountability, as well as how statutory frameworks, legal culture, and judicial philosophy affect that equilibrium. The study attempts to shed light on reform avenues, especially in Nigeria's changing corporate governance environment, by contrasting the codified and principle-based approach of civil law nations with the flexible, equity-based reasoning of common law systems. 2. Significance of Corporate Personality and the Doctrine of Separate Legal Personality According to Lord Templeman, the "unyielding rock" of corporations and company law is the concept of corporate personality and separate legal entity. 8 A "veil" is placed over a firm upon its formation, according to a long-standing legal norm. When the veil is figuratively positioned, the firm is considered as a distinct legal entity from its members, the corporation is able to acquire rights and take on obligations similar to those of a legal (juristic) person. At its core, it is a creation that is dual in character, existing as both an association of its members and an individual who exists independently of them. 9 It follows that a business can only take action through duly authorized agents. Despite the propensity to confuse the two, limited liability an outcome of corporate personality and piercing the veil cannot be explored separately because they are complementary ideas. Thus, it can be stated that limited liability is secured by distinct legal personality. 10 As mentioned earlier, the "limited liability" principle, often known as the veil of incorporation, attempts to protect members from a company's liability. Both praise and criticism have been directed towards limited liability. 11 It has even been claimed to have surpassed steam and electricity as the greatest modern discovery since its inception, according to one observer. 12 Similarly, it has been criticized for encouraging fraud, transferring the risk to creditors, lowering professional standards, and making fraud public. One important consequence of incorporating is that a company's liabilities, or responsibilities, become its property. As a result, in the event of a dispute, a company's separate legal personality will be recognized, and members will normally not be held liable for corporate debts; instead, the company will be fully responsible for its obligations. The core of company law is limited liability, 8 See the case of Salomon v. Salomon & Co. 9 P.W. Manda “A Comparative Analysis of Piercing the Corporate Veil in English Law and South African Law” available online at htpps://repository.up.ac.za last visited on 12/2/25. 10 Paul L. Davies Introduction to Company Law (2002) at 5-7 11 Stephen Mayson, Derek French & Christopher Ryan Mayson, French & Ryan on Company Law 22 ed (2005) at 151. 12 Professor Nicholas Murray Butler (President of Columbia University) Politics and Economics (1911) to the 143rd Banquet of the Chambers of Commerce of the State of New York at 43-45. Cited in P. W. Manda (n5) 19 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. which makes it simple for individuals to participate in business; in other words, investors are less inclined to take on commercial risks without the certainty of limited liability. 13 Commerce will be able to synchronize as a result, which will eventually provide money and jobs. Investors won't have to worry about creditors attacking their other assets if the business fails or is unable to pay its debts. Consequently, the investor's risk is restricted to the amount they have invested in the business. 14 Because of this, members usually take advantage of all the (economic and social) benefits and protections that limited liability provides, especially with regard to personal culpability. There is a widespread perception that limited liability flows from distinct legal personality. The fundamental concept of separate legal personality will be somewhat impacted if this viewpoint is maintained. 15 One could argue that every time the curtain is broken, the principle gradually deteriorates. 16 Academic groups are rather unsure about how limited liability and legal personality relate to one another. 17 However, the conversation of penetrating the veil has been greatly aided by legal personality. 18 Our perception of limited liability may change the scope and application of our perception of piercing the veil. Even while corporate veil has many advantages, there are also some difficulties because it can be used to mislead creditors, avoid current commitments, get around laws, or shield criminal activity. In order to prevent the corporate device from being effectively employed for such purposes, the veil of company is lifted. 19 In other words, despite its greatness, limited liability is frequently abused. Therefore, protection against limited liability is not absolute when a company is being utilized to maintain a sham or facade or to avoid legal and fiduciary obligations. 20 When individuals abuse the corporate veil, courts have the power to lift it, holding members accountable for the commitments and debts of the company. In essence, piercing the veil is an exception to both distinct legal identity and limited liability. It is distinct in nature and goes against the rationale for the creation and maintenance of 13 Cassim, Maleka Femida Cassim & Rehana Cassim et al Contemporary Company Law 2 ed (2012) at 3 14 Kim-Leigh Siebritz Piercing the corporate veil: A critical analysis of section 20(9) of the Companies Act 71 of 2008 (unpublished LLM thesis, University of the Western Cape, 2016) at 14. 15 Edwin C. Mujih 'Piercing the corporate veil as a remedy of last resort after Prest v Petrodel Resources Ltd: inching towards abolition?' (2016) 37(2) The Company Lawyer 39 at 43. Cited in P. W. Manda (n5) 16 ibid. 17 ibid. 18 ibid. 19 Emeka Chianu Company Law, (Law Lords Publication,2012) 303. 20 Gilford Motor Co Ltd v Horne [1933] Ch 935, CA at 943 20 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. legal fiction since only compelling grounds will permit a judge to lift the veil. 21 Penetrating the veil is fundamentally still a defence against the misuse of different legal entities. 22 It is basically one of the legal responses to the potential abuse of limited liability. In other words, piercing the veil can be said to have occurred when a group of pertinent facts becomes apparent. This occurs when a corporate corporation lacks a distinct mind, will, or existence due to members controlling its funds, rules, and commercial activities. 23 The court usually requires penetrating the corporate veil in this situation. However, the courts do not employ a single, unified approach to lift the veil. 24 To be honest, it has been characterized as illogical reasoning and careless statements. Because it relies on certain known categories and lacks generic checks, its implementation is usually inconsistent, rare, and unprincipled. 25 In fact, one of the most confusing aspects of corporation law is limited liability as a whole (and, on the other hand, piercing the veil). 26 Since the turn of the twentieth century (and undoubtedly in the twenty-first), courts have grappled with the issue of how to properly penetrate the veil. 27 It is an obscure term since it is nearly difficult to describe and reconcile the numerous situations in which the veil should be penetrated. 28 However, in the following situations, the court has lifted the company's veil: To ascertain the true nature of the business. In order to safeguard the business in the event of tax-related problems. When a business attempts to evade its legal responsibilities. When the controlling company' subsidiaries serve as their agents. Whenever it is discovered that fraud or improper behaviour has been committed. 3. Justifications in Piercing the Corporate Veil in Judicial Practice 21 P. W. Manda (n5), 17. 22 Eben Nel ‘Two Sides of a Coin: Piercing the veil and unconscionability in trust law’ (2014) 35 Obiter 570 at 570571. 23 Paul Davies (n6) 24 Cassim & others (n9) 25 Andrew Domanski ‘Piercing of the Corporate Veil: A New Direction’ (1986) 103 SALJ 224; Lynette C Davids ‘The lingering question: Some perspective on the lifting of the corporate veil’ (1994) 1 TSAR 155 at 155. 26 Amin Forji 'The Veil Doctrine in Company Law' 29 September 2007. Cited in P.W. Manda (n5). 27 Mayson, French & Ryan at 153-154. (n7) 28 P.W. Manda (n5),19. 21 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. Certain theories have been taken into consideration by the courts as justification for breaching the corporate veil. It is appropriate to take a quick look at these doctrines here. 3.1 Fraud or Evasion Doctrine Here, the business has been used as a means of avoiding contractual commitments. This happens when a shareholder forms a business to avoid his obligations under a confidentially or noncompetition agreement. 29 Evasion would happen if the business engages in illicit activities like money laundering or tax evasion and serves as a tool to circumvent legal constraints. 30 It is noteworthy that the definition of fraud in corporate veil cases is significantly more expansive than in general. The behaviour in question typically falls short of common law fraud and is more correctly classified as a deception when the courts allude to fraud in these situations. The terms "fraud" and "misrepresentation" appear to relate to the same category of behaviour in the courts. 3.2 Agency Doctrine This theory, which is sometimes referred to as the instrumentality theory in the US, focuses on how the business is actually run and what a shareholder's position entails. When a company represents its directors and shareholders as an agent or alter ego, the courts focus on the situation's actuality rather than its appearance. 31 In essence, what is important is ‘how the company conducted business and how each person was connected to it’. 32 In a typical relationship with its shareholders, a company is the principal and its directors are its agents. 33 In some situations, though, this relationship is reversed. In other words, the directors and shareholders are the principals, while the firm is the agent. 34 This occurs when companies, including close corporations, are rearranged like " puppets to carry out the puppet master's instructions." 35 To put it another way, the controlling shareholders or directors " treat the business as if it were just a tool for advancing their personal interests rather than as a distinct entity." 36 The 29 Gilford Motor Co Ltd v. Horne, [1933] Ch 935. See also Jones v. Lipman [1962] 1 W.L.R. 832 (Ch.) at 833. 30 Marina Nominees Ltd v. F.B.I.R (1986)2NWLR (Pt. 20)20. See also Alade v. Alice (Nig) Ltd (2010)19 NWLR (Pt.1226)at 116-117. 31 Cassim & others (n9) 32 ibid. 33 Farouk HI Cassim, Maleka Femida Cassim, Rehana Cassim et al The Law of Business Structures (2012) at 61-2 34 ibid. 35 P.W. Manda (n5),35. 36 Cassim & others 69. 22 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. business is then seen as the directors' and shareholders' "agent," "alter ego," or "instrumentality." 37 In this instance, the firm's operations are conducted in a way that makes it impossible to distinguish between the company's economic operations and the directors' and shareholders' personal concerns. 38 3.3 Alter Ego Doctrine The alter ego hypothesis states that when two related corporations have such a unity of ownership and interest that they can no longer be considered separate, the subsidiary is viewed as the parent company's alter ego. Additionally, acknowledging the organizations' distinct entities must either encourage fraud or produce unfair outcomes. 39 According to alter ego theory, piercing the corporate veil necessitates the cooperation of three elements: first, the parent corporation or stockholders control the corporation; second, the plaintiff is subjected to fraud or fundamental unfairness; and third, the plaintiff suffers harm or damage as a result of the corporation's fraudulent or unfair act. 40 3.4 Undercapitalization Doctrine This is a scenario in which the shareholder either failed to contribute sufficiently to the registered capital of the business or unlawfully took such capital including corporate funds and assets out of the company. 3.5 Justice Everyone agrees that achieving justice is the primary goal of the corporate veil doctrine in the US. In Anderson v. Abbott, 41 the Supreme Court decided that the courts would treat the transaction's content as if the corporate agency didn't exist and as the case's justice would dictate, rather than allowing themselves to be deluded or duped by mere legal formalities. In Arnold v. Phillips, 42 The Fifth Circuit Court of Appeals came to the conclusion that the corporate entity must be a deception, a sham, or merely an impediment to justice in order for the corporate veil concept to be applied. In one of the most well-known corporate veil instances in US history, Berkey v. Third Avenue 37 ibid. 38 ibid. 39 Philip Orn “Piercing the Corporate Veil-a Law and Economics Analysis” availabl online at https://lup.lub.lu.se pdf accessed on 14/5/25. 40 See Roquel v Philippine National Bank, G.R. No. 246270, 30 June, 2021. Cited in Atty, Euney Marie J. Mata-Perez “Piercing the veil of Corporate Fiction” available on line at www.mtfcounsel.com accessed 02/05/2025. 41 321 U.S. 349, 363 (1943) 42 117 F.2d 497, 502 (5th Cir. 1941). 23 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. Railway, 43 Justice Cardozo, a member of the New York Court of Appeals at the time, highlighted the need of justice as a guide in matters pertaining to corporate veils. 44 4. Comparative Analysis of Veil Piercing Mechanisms Across Jurisdictions 4.1 Common Law Jurisdiction A. Nigeria The concept of distinct legal personality, which was established in the Salomon v. Salamon & Co. case, is widely revered in Nigeria; without it, the business would lose a lot of its appeal. 45 A learned writer has described this situation as a dogmatic approach to the corporate governance philosophy. 46 In J & J Technologies Ltd v YHQS 47 , The court decided that the registered company's independent personality is unconstrained, even when a director is the only signatory to the company's account. In NBCI v Integrated Gas Nigeria Ltd 48 , According to the court's ruling, a business must be given the right to be recognized as having a distinct personality from the biological individuals who manage it. The issue in Nigeria, however, is that a lot of corporate directors have taken advantage of corporate entities to boost corporate profits. Because of the powerful administrative tools at their disposal and under their control, it is challenging for the company to hold directors accountable for breach of duty. Because the entity was an artificial entity with a separate legal personality involved in business operations, involving enormous amounts of money, it turned into a Frankenstein monster that had to be subdued in order to reduce harm and commercial catastrophe to people while still being a useful tool for business ventures. 49 If dishonest persons use the so-called "corporate shield" to hurt innocent third parties, this might occur. 50 Similarly, the status of incorporation protects the company's directors from liability for the company's actions. As a result, people may use their creativity to incorporate a business, get credit, misuse or misappropriate it without paying back, believing that the company alone should be held accountable. Even worse, in many businesses, the directors are typically the controlling shareholders, which makes removal challenging and occasionally impossible. Since directors are the primary operators and a corporation is fundamentally a fund, it becomes necessary to lift the veil on them under specific conditions. 51 43 155 N.E. at 61. 44 (n32)25. 45 Eni Eja Alobo, Company Law and Practice in Nigeria (Princeton & Associates Publishing Co. Ltd, 2022) 252. 46 J. A. M. Agbonika, Modern Nigeria Company Law (Ababa Press Ltd, 2021) 204. 47 [2015] 8NWLR (Pt.1460)1 at 21 paraG-E. 48 [1999]8NWLR (Pt. 613) 119@129 49 J. E. O. Abugu, Principles of Corporate Law in Nigeria (2nd Edn, Afkar Printing and Publishing Company Ltd,2023) 240. 50 Pereowei Subai, Company Law in Nigeria (Dok Consult and Research LLP, 2023) 84. 51 Alobo (n 46) 24 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. In Adeyemi v Lar and Baker (Nig) Limited 52 , The court ruled that a company's veil of incorporation is not infallible. Therefore, if the court is supplied with significant information that establish a corporation is the product of a biological person, which he utilizes as a mask, a sham, or a device to evade recognition by equity, the courts will be ready and willing to lift the veil of incorporation to reveal the true nature of the company in order to do justice. In Nigeria, specific situations where the veil of incorporation will be lifted have been specified by statute. Nonetheless, there are still many situations in which the court may step in to ensure justice. 53 Examples under legislative provisions will be examined first, followed by examples under case law. 1. Statutory Provisions i. Reduction in Number of Members and Directors in a Company. Section 118 of the Companies and Allied Matters Act provides ample provisions for this. 54 A company that carries on business with less than two members for more than six months, for any debts the firm accrues during that time, all of its officers and directors are held jointly and severally accountable. Two directors are required for all companies, with the exception of small ones. Every member and director who knowingly carried on the company's operations will be held personally responsible for any debts incurred during that time if there are not two and the vacancy is not filled within a month. 55 ii. Personal Liability of Directors and Officers Section 316 of CAMA enshrines this. Additionally, it stipulates that if the company receives money for a loan or receives money or property as an advance payment for the execution of the contract with the intent to defraud and fails to apply the money or property for the purpose for which it was received, every officer or director who is in default is personally liable to the party from whom the money or property was received. The company's liability is totally disclaimed. 56 In the case of Public Finance Securities Ltd & Anor v. Jefia 57 A company's chairman and managing director utilized assurances and guarantees to persuade someone to deposit money with them for agreedupon returns, but they later refused to pay, citing low production. Based on the evidence, the court 52 (2000) 7 NWLR (Pt.663)33. 53 J. O. Orojo Company Law and Practice in Nigeria (5th Edition, LexisNexis, 2008) 88. 54 Companies and Allied Matters Act 2020 (as amended) (hereafter CAMA) 55 See . S. 271 (2-3) CAMA 56 See S. 316 (1) (c ) 57 (1998) 3 NWLR (Pt. 543), 602 31 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. future responsibility. 89 In Parker v Bell Asbestos Mines, Ltd, The court reached a different conclusion from that in England, determining that it is an abuse of privilege to utilize legal tactics to enhance liability restrictions to the point of near invulnerability to responsibility for harm to the public, which must surely fail in an equitable weighing of conflicting public policy reasons. It is important to note that parent-subsidiary connections were a common feature of the US cases mentioned above. 90 This could explain why veil piercing is seen more liberally in the United States. In general, the collection of veil piercing cases 91 is a little unclear in the United States. It is hard to disagree with Miller's observation that: Due to the diversity of judicial methods, the use of general vocabulary, and the sheer volume of court rulings, veil-piercing jurisprudence in the US lacks the degree of confidence and predictability that contemporary industry expects. For the business planner, the veil-piercing common law of contracts and torts is still very challenging and very discretionary. 2. Civil Law Jurisdiction A. China A particular legal provision in China offers an exemption to limited liability and separate personality. Before the 2005 Company Law, Chinese law did not formally acknowledge veil piercing. However, prior to its adoption in 2005, the Chinese judiciary treated the idea cautiously even in the absence of a clear statutory basis. Article 20 of the 2005 Company Law, 92 gave a broad principle that a company's shareholders should not abuse their rights, the company's legal person status, or its limited liability as stated in the third paragraph which stipulates that: 89 Adams v, Cape Industries Plc [1990] 2 WLR 657; [1990] Ch. 433 (A.C.) at 544. wherein the English Court of Appeal ruled that employing a corporate structure to restrict future liability is a vital part as governed by English company law and effectively ruled out veil piercing in tort proceedings. After Adams, veil-piercing plaintiffs have not had an entirely bleak future. Two years later the case of Creasey v. Breachwood Motors Ltd. [1992] B.C.C. 638 (Q.B.) at 647–48 broke through the barrier. The case involved two companies whose assets were reallocated between jointly owned entities to preempt the consequences of an anticipated verdict. Following a five-year interval, the Admiralty Court explicitly endorsed the reasoning in Creasey and prohibited the sale of a vessel by one member of a business group to another in a case with nearly identical facts - The ‚Tjaskemolen‛ (Now Named ‚Visvliet‛), [1997] 2 Lloyd’s Rep. 465 (Q.B.) at 470–71 Regretfully, Creasey was later overturned in Ord & Anor v. Belhaven Pubs [1998] B.C.C. 607 (A.C.) at 616. 90 Mangan v. Terminal Transportation System, Inc., 247 A.D. 853 (1936). 91 Sandra K. Miller, Piercing the Corporate Veil among Affiliated Companies in the European Community and in the US: A Comparative Piercing Approaches Analysis of US, German and U.K. Veil Piercing Approaches, 36 AM. BUS. L.J. 73, 94 (1998). 92 Revised in 2013. 32 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. Any shareholder who misuses the company's limited liability and independent legal person status to avoid paying the company's debts, thereby seriously harming the interests of the company's creditors, will be held jointly liable for the company's debts. 93 A four-pronged legal test, or a standard with four components, is established by Article 20 for judicial implementation of the theory. First, it must be demonstrated that the shareholder in question has misused both the shareholder's restricted liability and the company's legal person status. Second, the aforementioned misconduct must be meant to "evade" making payments to the company's creditors. Third, there must be "serious" harm to the creditors' interests. Fourth, there must to be a direct connection between the creditors' losses and the abusive actions of the shareholder. 94 Since the new Company Law took effect in 2006, hundreds of veil-piercing cases have been decided by Chinese courts. This suggests that Chinese courts have been keen to lift the corporate veil, or at least, " Chinese judges are clearly significantly more likely to pierce a company's veil and shift liabilities to its owners based on statutory authority than their common law counterparts who depend on judicial principles." 95 Due to their readiness to penetrate corporate veils, Chinese courts are regarded to be engaging in "judicial activism" in veil-piercing cases. 96 Although a broad principle is outlined in Article 20 of the Company Law, academic literature has proposed the following situations that could result in enough abuse to justify veil piercing. 97 The first is under capitalization, which is caused by shareholders' insufficient contributions to the company's capital or their unlawful withdrawals from its capital (cash or assets). The second is when the business has been utilized as a means of avoiding contractual duties. A third scenario occurs when the business is used to get around legal restrictions and engages in illicit activities like money laundering or tax evasion. Lastly, in cases where there has been a lack of formality or uncertainty that could lead to the company's and the shareholder's affairs being mixed up. In some cases, the shareholder creates an alter ego by ignoring the company's separate legal personality. 93 Hui Huang, Piercing the Corporate Veil in China: Where Is It Now and Where Is It Heading?, 60 AM. J. COMP. L. 743, 744 (2012) 94 See XI Xiaoming and Jin Jianfeng Corporate Litigation: Theories and Practices (People’s Court Press, 2008 )562-564. 95 ibid. 96 Colin Hawes et al, “Lifting the Corporate Veil in China: Statutory Vagueness, Shareholder Ignorance and Case Precedents in a Civil Law System,” 15 J. CORP. L. STUD. 341 (2015) 97 See Xi and Jin (n95) Huang (n94) 33 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. Despite the foregoing, Xi and Jin 98 have revealed two former China Superior People's Court (SPC) justices issuing warnings that: In order to preserve the concepts of autonomous legal identity and limited liability of contemporary corporate law, the penetrating corporate veil rule must be applied cautiously whenever a situation can be resolved by the standard civil law norms. Instead of becoming a common legal strategy, the veil piercing doctrine should only be applied as a last resort. None of the four recommended strategies appear to have a cascading effect on the others when applied by the courts. The court would decide which of the options to use based on the facts of the case. However, it appears that the majority of incidents where veil piercing has taken place are related to commingling. 99 The main idea behind commingling is that the company's assets and those of its shareholders cannot be distinguished from one another. For this reason, they should be regarded as one and the same. The asset commingling approach's application in court is exemplified by the case of Wuhan Vegetables Co. v. Wuan Jiutian Trade Development Co. 100 wherein Tianjiu Co. received the plaintiff's ownership stake in Baishazhou LLC. The complainant was never compensated in full by Tianjiu for this transfer. Later, Tianjiu gave Mrs. Wang Xiuqun a portion of this ownership holding, giving her a 70% stake in Baishazhou. After that, there were two more transfers. Mrs. Wang first gave China Velocity Group Limited her equity stake in Baishazhou, and then she gave Huang Yi and Tao Xin her 96% equity stake in Tianjiu. The corporate veil against Mrs. Wang was permitted to be lifted by the court. Based on the aforementioned actions of the majority shareholder, who had total control over Tianjiu, and the lack of evidence that the plaintiff was duly compensated for the transfer of its equity interest, the court concluded that Mrs. Wang had effectively "escaped" from Tianjiu by transferring her equity ownership to others. The court determined that she had adversely impacted the plaintiff's ability to realize her debt claims as Tianjiu's creditor. According to Article 20(3) of the Company Law, Mrs. Wang was therefore jointly accountable for Tianjiu's indebtedness. This case can be seen as an example of a shareholder deceiving creditors by abusing the corporate structure. Another theory is that Mrs. Wang, the defendant, stole the company's assets from the plaintiff. Veil piercing was justified since this one instance of misappropriation was seen to be proof of asset commingling. In the case of Yueyang Shenyu Grease Trading Ltd. v Lin and Others 101 the Yueyang Municipality Intermediate Court's ruling. Mr. Liu and Mr. Hu were the defendant company's two stockholders 98 (n94)560. 99 Ibid 748. 100 (2009) Wu Min Shang Chu Zi No. 66, Wuhan Interm. People’s Ct., December 25, 2009. 101 (2010) Yue Zhong Min San Zhong Zi Di 276 Hao, Yueyang Interme. Peple’s Court, September 30, 2011. 34 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. in this instance. Mr. Peng was appointed finance manager and Mr. Xu was appointed CEO. Orally, it was decided that Messrs. Liu, Xu, and Peng would own 40%, 40%, and 20% of the company's shares, correspondingly. Despite this arrangement, Messrs. Liu, Xu, and Peng were recognized by the firm as the real shareholders and controllers, but Mr. Liu and Mr. Hu continued to be the only stockholders listed. The complainant paid the business several times for cotton purchases. The finance manager put these sums into his personal bank account to lower the company's income for tax purposes. When the cotton they purchased was not delivered, the plaintiff filed a lawsuit against the company due to its inadequate assets, naming its stockholders as defendants. In the first case, the court found that by combining corporate and personal assets, the three shareholders Messrs. Liu, Xu, and Peng who were regarded as actual shareholders had broken the company's independent legal personality. They were consequently both held responsible for the company's debts. In contrast, Mr. Hu was not responsible. The first instance ruling was modified by the appeal court. In his function as the legal agent and registered shareholder, it was found that Mr. Liu had actually violated the company's separate personality and harmed creditors' rights. Lifting the corporate veil in his case was therefore acceptable. As a shareholder, Mr. Hu was also liable for the company's debts. However, since the finance manager was not a shareholder, veil piercing did not apply. Since Mr. Xu had accepted the first instance ruling, the court did not take his case into consideration. The case of China Orient Asset Management Co Ltd v. The Xi’an High-Tech Area Branch of China Construction Bank 102 may shed light on how to address the undercapitalization issue. In this instance, Jinling Company received a loan from China Construction Bank. But Jinling didn't pay back the China Construction Bank. China Orient Asset Management Co. Ltd. (COAMC), the plaintiff, eventually received the debt from the bank. Due to four of the owners' fraudulent capital contributions and one shareholder's RMB2 million withdrawal from Jinling, COAMC filed a lawsuit against a number of Jinling shareholders, requesting that they be held jointly accountable for the debt. The plaintiff's complaint was initially upheld by the Xi'an Intermediate People's Court. The Shan'xi Higher People's Court, the appeal court in this instance, disagreed with this line of reasoning. The application of the veil piercing theory was deemed incorrect by the appeal court. In the end, the appellate court ordered the shareholders to reimburse the plaintiff for the same amounts, despite the fact that it was founded on a different legal theory known as complimentary liability. B. Germany In Germany, veil piercings by judges are uncommon. 103 Courts limit damaged creditors' direct claims against stockholders to circumstances where assets have been mixed. The guidelines set 102 2010)Shan Min Zai Zi Di 00013 Hao,Shaan’xi Higher People’s Ct. Apr. 7, 2011 103 See COMPARATIVE COMPANY LAW – A CASE-BASED APPROACH 219 (Mathias Siems & David Cabrelli eds. 2nd ed. 2018). 35 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. down and implemented by German courts have recently evolved in all other cases. 104 Shareholders may be held liable for tort rather than veil piercing if they deplete a corporation of its assets at the expense of creditors. Because stockholders are answerable to the company rather than its creditors, the latter's losses are reflective in nature, courts avoid veil-piercing. 105 Furthermore, stockholders are never held personally responsible for instances of undercapitalization or misuse of the corporation form; additionally, a company's dominant influence does not constitute a basis for such accountability on its own. Previous decisions that used corporate group principles in cases where shareholders controlled a group company to its detriment are no longer applicable. 106 They are now included in newly created criteria that apply when stockholders endanger the company's existence. For the courts to be motivated to lift the company's veil, the shareholders' actions must be close to what is known as "annihilating interference." German courts acknowledged in the 1920s that shareholders may be held personally accountable when their actions caused businesses to go bankrupt. Courts tended to view dominant shareholders in GmbHs (Private Limited Liability Companies) that went bankrupt and failed to pay creditors negatively between the 1980s and the early 2000s. Over time, the conditions for this kind of personal culpability have changed. These characteristics encouraged disgruntled creditors to demand that stockholders be held personally liable for the company's debts, citing inadequate capitalization. However, this hope has been dashed by a recent ruling by the German Supreme Court. In its 2007 Trihotel judgment, 107 the Supreme Court (BGH) affirmed earlier decisions and decided that owners might be held personally liable for misconduct if they mismanaged assets intended to be set aside preferentially for creditors, which ultimately led to or made the company's insolvency worse. But the court tightened the conditions for this kind of responsibility. It particularly overturned earlier decisions that had established a subtype of veil-piercing based on the exploitation of the corporate structure as an exception to the idea of limited liability rather than torts. However, the Supreme Court stated in its decision in the Trihotel case that it considered its earlier decisions to be problematic from a doctrinal perspective since they had led to shareholders being held personally liable to creditors even though no obligations due to creditors had been violated. The corporation only suffered losses as a result of the duties that were violated. The Supreme Court deemed it incorrect to assume that creditors were instantly impacted by any loss of company assets. 108 Rather, the losses were solely reflecting in nature, and creditors typically had no recourse for reflection losses. The Court emphasized that because veil-piercing could undermine the limited liability principle, it must be employed carefully. It was obviously worried that supporting widely defined categories of veil piercing would lead to a system that judges may apply too carelessly. 104 Cheng-Han Tan & Others (n1), 170. 105 ibid. 106 GNTER H. ROTH & PETER KINDLER, THE SPIRIT OF CORPORATE LAW – CORE PRINCIPLES OF CORPORATE LAW IN CONTINENTAL EUROPE 68 (2013). 107 BGH Trihotel, 2007 NJW 2689 108 (supra) 23. 36 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. In instances of "annihilating interference," stockholders were still held personally accountable, but this was no longer determined by the same factors. The Court determined that "annihilating interference" would now be considered tortuous liability for illegally and selfishly tampering with company’s property. For the benefit of creditors, these corporate assets are subject to strict capital maintenance laws. When tampering with these assets leads to or exacerbates corporate insolvencies, tortuous liability ensues. 109 Damages are payable to the company alone, not to its creditors, because the company's losses are only reflective. Soon after, the Supreme Court upheld these novel ideas in its GAMMA decision. A state court of appeals' decision to hold the shareholders of a GmbH (private limited liability company) personally accountable for using the business as a "Cinderella company" anticipated the Supreme Court's decision. 110 The Supreme Court reversed the appellate court's decision and upheld its earlier decision in Trihotel, which found that stockholders cannot be held directly accountable to creditors for activities that jeopardize the company's survival. It continued by elaborating on more aspects. It emphasized that instances of basic undercapitalization in a material sense that is, circumstances when capital maintenance rules are not violated do not meet the requirements for a "annihilating interference." In this instance, the court decided that the shareholders' annihilating involvement could not be justified by their incapacity to provide the company with enough support to enable it to pay off its debt. The corporation was officially fully funded as required by law, and the stockholders did nothing to prevent the creditors from having legal access to all of the company's assets while it was a going concern. Therefore, there may be a direct claim against stockholders, but only in cases where the company's creditors were directly harmed by a tort. Because it does not conflict with Trihotel's finding that creditors cannot claim merely reflective wrongs and damages, this GAMMA ruling is consistent with the latter. Since then, several rulings have validated Trihotel and GAMMA's position. 111 When shareholders mixed private and corporate assets, German courts have the authority to lift the veil. The only situation in which German courts still apply veil-piercing principles to make shareholders directly liable to a company's creditors is commingling. This type of corporate veil-piercing has been consistently upheld by the Supreme Court, which has also contributed to its development. The Supreme Court established the conditions for personal liability stemming from the mixing of personal and business assets in a 2005 decision that disregarded capital maintenance rules. The verdict states that payments made to third parties, the firm, and its shareholder or shareholders must be so opaque that it is impossible to identify them as belonging to the company. Consequently, it becomes impossible to identify the company assets from the personal holdings of the shareholders. 112 109 (supra) 28. 110 (GAMMA), 2008 NJW 2437 111 Sanitary, 2009 NZG 545. 112 BGH II ZR 178/03, Nov. 14, 2005, 2006 NZG 350 37 Official Publication of the Society of Innovative Academic ResearchersSIAR PUBLICATIONS Advancing Real-Time Innovative Knowledge Globally. Copyright ©SIAR Publications. All rights Reserved. Despite the notion that civil law judges do not make law, veil-piercing is a judge-made legal rule in these mixed situations that fills a gap left by statutory law. Its conceptual basis is the implementation of section 128 of the Business Code (Handelsgesetzbuch), which imposes personal liability on all general partners in commercial partnerships, and the abuse of the corporate structure, which leads in the loss of the limited liability privilege. The extreme situation when corporate assets are indistinguishable from shareholders' personal assets justifies the terrible consequence that the shareholders responsible for commingling are directly and personally liable to the company's creditors. 113 Attempts to break through the corporate curtain are increasingly met with hostility in Germany. The Supreme Court's shift in opinion in the "annihilating interference" cases suggests that it may be heading in that way, as many observers contend that the idea should be completely abandoned. 114 1. Conclusion The comparative investigation of corporate personality and its constraints exposes veil-piercing doctrines' contextual variation as well as their universality. The way that different governments balance limited liability and accountability differs greatly, even though they all stem from the same aim to stop corporate wrongdoing. By the US's adoption of pragmatic and policy-driven approach, judges are able to more easily remove the veil when justice and fairness demand it. Nigeria's approach to veil piercing, on the other hand, is still mostly based on English law, although it is less theoretically sophisticated, has uneven applicability, and depends less on statutory authority. There is more doctrinal coherence in civil law systems, especially in China and Germany. China’s codification under the Company Law establishes precise statutory requirements for shareholder accountability if corporate wrongdoing occurs, demonstrating a state-driven commitment to market order and creditor protection. Germany’s approach contains a fundamental restriction of liability, highlighting the abuse of legal form rather than judicial discretion. The necessity for balanced reform in Nigeria and other common law jurisdictions is highlighted by all of these comparative findings. Predictability and deterrence would be enhanced by codifying specific veil-piercing reasons, such as fraud, undercapitalization, and abuse of distinct personality. In the end, the corporate veil shouldn't be a weak barrier that may be easily breached or an unbreakable barrier for misconduct. It must continue to be a disciplined legal instrument that upholds the integrity of corporate personality while serving justice. 113 (n1) 182 114 Lord Neuberger of the UK Supreme Court was sympathetic to such a view, see Prest [2013] 3 WLR 1 [79].