Browsing by Subject "abuse of the corporate form"

The principles of separate corporate personality and limited liability are immutable characteristics of the modern corporate form. Together they create a regime of asset partitioning in company law, which means that, as a statutory default rule, the property of a company is separate from the personal assets of its shareholders and it cannot be used to satisfy the owners’ personal debts. Reversely, corporate shareholders are not generally liable for obligations incurred in the name of the company, with corporate creditors being able to seek enforcement solely against the assets of the indebted entity. Veil piercing is a company law doctrine, which allows the courts to derogate from statutory principles of separate corporate personality and limited liability by holding a shareholder personally liable for debts owed in the name of the firm. Piercing is employed as a weapon against owner opportunism and is generally seen as an option of last resort in the face of the abuse of the corporate form. This paper examines and compares the development of veil piercing in the legal systems of Finland and the United Kingdom (UK), with the aim of highlighting material similarities and differences in the preconditions for its application. While both legal systems unequivocally recognize the existence of a general doctrine of corporate veil piercing, they do so in the absence of any statutory provisions to this effect. Instead, the doctrine has been formulated and developed through the case law of the national courts, with the decision of the Finnish Supreme Court in KKO 2015:17 and that of the UK Supreme Court in Prest v Petrodel Resources Ltd (Prest) constituting the main modern authorities in this area. As the basis of the compared doctrines is rooted in judicial reasoning, this paper uses the traditional legal dogmatic method to examine and interpret key judgements from both jurisdictions with the aim of establishing existing law. However, the primary objective of this paper is that of functional comparison, as it seeks to discern the substantial similarities and differences between the two legal systems in their approach to the issue of the abuse of the corporate form. Based on an analysis of sources from both jurisdictions, this paper identifies four common factors that should arguably form part of any authoritative future formulation of the piercing test in both Finland and the UK: (i) an element of unconscionability, (ii) significant harm to the protected interests of third parties, (iii) the shareholder exercising actual control over corporate affairs and (iv) a lack of any meaningful administrative and economic independence on the part of the affected entity. However, despite finding such surface-level similarities between the two piercing doctrines, this paper goes on to conclude that the approaches adopted by the Finnish and the UK courts in veil-related cases are fundamentally different. While the Finnish Supreme Court in KKO 2015:17 managed to identify specific, albeit not exhaustive, preconditions capable of future application, the UK Supreme Court’s judgement in Prest has effectively frustrated the role of the doctrine in the legal system, rendering it all but obsolete. Instead, relief is often provided through the application of ordinary principles of English private law, especially the constructs of agency and trusts. In light of the ambiguity and confusion pertaining to the doctrine’s role in the UK legal system, this paper argues that the Finnish courts should view the haphazardous development of veil piercing in the other jurisdiction as a cautionary tale, emphasizing the overwhelming need for a principled approach when judicially derogating from leading statutory provisions in the area of company law.