Browsing by Author "van Nues, Kristina"

Veil piercing is a doctrine of corporate law allowing the courts to lift the veil between a company and its shareholders in order to make those shareholders personally liable for the obligations of the company. This doctrine is present in both England and Finland and is inextricably linked with the principles of separate legal personality and limited liability: piercing disregards separate legal personality in order to strip the protections of the corporate form from a miscreant shareholder, namely the protection of limited liability. This thesis asks in what circumstances is piercing the corporate veil and stripping these protections from a shareholder can be justified as a proportional violation of separate legal personality and limited liability. This thesis begins by examining the nature of the company as well as its key attributes: legal personality, limited liability, transferable shares, delegated management and investor ownership. It concludes that limited liability is an extension to separate legal personality and together they allow for asset partitioning, while the latter three elements help to support the first two. Section 4 of this thesis starts with an overview of limited liability under English and Finnish law before analysing the moral hazard problem of limited liability. This is that the separation between management and shareholders and the insulation of both shareholders (and to a large extent) managers of the company from down-side exposure caused by risk-taking inevitably leads to less caution, a lack of monitoring and even negligence. This thesis then considers the rationales in favour of limited liability, which can roughly be divided into: investment incentivisation, lowering transaction costs and the facilitation of the stock market. It weighs these against the problems associated with moral hazard, with particular consideration given to closely-held vs. public company and voluntary vs. involuntary creditors. This thesis concludes that the justifications for limited liability outweigh the moral hazard problem largely only in the case of public companies and those involving voluntary creditors. Section 5 of this thesis examines veil piercing under s. 213 and 214 of the English insolvency Act 1986, before analysing several significant English cases on piercing, including the current authority Prest v. Petrodel Resources Ltd, and the Finnish piercing cases, including KKO 2015:17. It concludes that although English law on veil piercing has traditionally been confusing, ambiguous and riddled with uncertainty, the introduction of the Prest test has brought some much needed clarity into the area. Finnish piercing law is more nebulous than its English counterpart with no clear test, but the fact that it identifies certain elements that may lead the courts to pierce the veil makes it more flexible. The doctrine requires additional clarity and articulation in both jurisdictions. In section 6, this thesis criticises English veil piercing doctrine for its narrowness and contends that the extremely limited remit has essentially negated the usefulness of the doctrine. It views the lack of consideration of factors such as undercapitalisation of subsidiaries and the existence of involuntary creditors as a weakness and considers that the additional flexibility and more holistic approach of the Finnish doctrine is desirable, but that this creates uncertainty problems. This thesis also recognises that courts in both jurisdictions seem to implicitly consider that veil piercing is more possible and justified in cases where the rationales for limited liability fail to overcome the moral hazard problem. This thesis then goes on to identify several common elements in the piercing doctrine in both England and Finland, which it contends should be present in any future tests on veil piercing: (i) direct and significant control over the company, (ii) some element of unconscionable behaviour and (iii) a misuse of the corporate form and the protections of limited liability (generally for the purposes of avoiding liability for the aforementioned unconscionable conduct). It further concludes that courts should also accord weight to the nature of the misconducts together with additional considerations, including whether the case involves purposefully undercapitalised subsidiaries or involuntary creditors. The doctrine should remain a judicial remedy and it should continue to be rarely resorted to, although its scope should still be widened from its current one in order to ensure that it is an effective solution to the moral hazard problem of limited liability.