Proposed Amendment of "Piercing the Corporate Veil"
In the attempts to prevent future occurrence of tunneling, the Legislative Yuan passed the preliminary review of amendment to the law on “Piercing the Corporate Veil” yesterday (7th).
If this proposed amendment passed its third reading, the court will have the rights to supersede the restrictions on the limited liability of shareholders and command the shareholders or the mastermind to come forward and assume the liabilities when the shareholders intentionally use juristic persons as the improper means for acquittal. The creditors will be able to file claims against the irresponsible company owners via the court, thus further protect their rights and interests.
The legislation of our country has already acknowledged the form of one-person corporate and also respects the business autonomy. However, the existing Corporate Law does not have the relevant provisions on piercing the corporate veil. This has given people with bad faith the opportunity to set up shell companies for criminal activities and they can only be investigated and prosecuted under the charges of fraud and breach of trust.
The proposed amendment was drafted as follows: “For company shareholders who abused the status of juristic person and caused the company with specific debt burden and significant difficulties to pay off, given the circumstances are serious and necessary, the concerned shareholders shall bear the responsibility for the settlement.”
The basic factors of piercing the corporate veil the court primarily considered include: the number of company shareholders and the degree of ownership concentration, whether the debts were originated from the shareholders fraud, whether the company is significantly lack of capital to bear the debts generated by business operations etc.
Therefore, the amendment to the law on “Piercing the Corporate Veil” can prevent the individuals with the intention from abusing the company’s independent personality and using it as the means to be acquitted of fraud.