Outsider Reverse Piercing the Corporate Veil With Regard to Substantial and Procedural Issues—on Lehman Brother Litigation in Taiwan
Date Issued
2015
Date
2015
Author(s)
Chen, Chin-Che
Abstract
Abstract Lehmen Brother, a multi-national conglomerate, went bankrupt. Investors worldwide who had held the Lehmen Brother minibonds bear severe loss. This reveals new challenges to the existing laws and regulations on the investors’ protection while global finance is becoming more vibrant, at the same time regulations on financial markets gradually deregulated. More often than not, multi-national financial conglomerates set up several subservient companies, divide up the entire procedure of a financial product business into different steps (issuing, quranteeing, selling, brokering…etc), and then assign different subservient companies with these task. As such, the conglomerates can effectively prevent their dominant company from any potential liability due to the shelter of limited liability. Responding to emerging conglomerates, laws and courts have been forced to deal with it. With a series of Lehmen Brother litigations in the Taipei District Court, these litigations brought about new challenges—like, outsider reverse piercing the corporate veil, the judicial jurisdiction on an offshore company, and the choice of law for piercing the corporate veil—to Taiwan legal regime. After reviewing articles and summarizing the court decisions which dealt with outsider reverse piercing the veil in the U.S., this thesis concludes that, as a matter of fact, most of the aforementioned courts recognize the remedy of outsider reverse piercing the veil (hereinafter to “the Remedy”). Thereforem, in terms of a legal transplant, the Remedy can be transplanted. Accordingly, the concern shall be what approach we shall take so as to not only appropriately consider innocent stakeholers but also apply the Remedy more consistently. This thesis submits that we should adopt the “hybrid approach”: when there is no other effective alternatives, in regardless of the existence of innocent stakeholders, the Remedy shall be granted. As for any innocent shareholder, they can be provided with a claim of “capital exemption”. In terms of any innocent creditors, the existing civil law and enforcement law already provide enough protection. There is no need to refuse to grant the Remedy simply because there is an innocent creditor. As a matter of legal transplant methodology, the Section 2 of Article 154, Company Act 2015 (amended) recognizes the equitable principle underlying piercing the corporate veil and also recognizes that the protection to the creditor shall be as important as limited liability principle. The underlying principle of both traditional piercing the corporate veil and outsider reverse piercing the corporate veil is the same. The Section 2 of Article 154, Company Act 2015 (amended) could be substantive applied as a legal basis for the Remedy. Also, after the examination of the U.S. law, there shall be unique considerations for piercing a subservient company’s veil of a corporate group. In this context, some argue that the piercing the corporate veil shall be replaced by enterprise liability theory. Yet, this approach might be even more drastical than piercing the veil. This thesis argues that the focus shall be, in this context, what approach we should take in order to enhance the effectiveness and predictability of piercing the veil. This thesis submits that we could consider the “factual combination” approach to better examine the relation between the subsidiary company and the parent company, such as whether or not they both are hopelessly intertwined, or they still maintain a certain separateness in terms of daily business operation and financial ability. Moreover, the applicability of the theory “piercing the corporate veil” does not limit to substantial issues, but already comprehensively extends to procedural issues in the U.S. courts. This thesis introduces one of the most important procedural issue “jurisdictional veil piercing” and submits that this theory shall be transplanted into Taiwanese legal regime. Hopefully, this thesis will trigger a ripple effect so as to broden the applicability of the piercing the veil to procedural issue in Taiwan, as well as to provoke the reflection to prevailing theory—“Theory of Reverse Inference”—which is the dominant theory in Taiwan on whether a domestic court have a jurisdiction over an international civil litigation. This prevailing theory becomes less capable to deal with the fast-changing global commerce and economic. “Modified Theory of Reverse Inference” shall be considered. Lastly, after examining relavent articles about the choice of law for piercing the veil, this thesis submits that we should take the legislative approach to enact an specific provision for the contention of choice of law for piercing the veil. Prior to the enactment, the court can rely on the Article 1 of “Act Governing the Choice of Law in Civil Matters Involving Foreign Elements”(hereinafter to the Act of the Choice of law) so as to substantive apply the Article 26 of the Act of the Choice of Law. This thesis submit that to some extent both the “general analysis of choice of laws” and “internal affairs doctrine” are inappropriate. Reviewing the Lehmen Brother litigation in Taiwan, the Taipei district court completely ignored the distinctiveness of the choice of law for piercing the veil. This kind of opinion will further leads to the application of the general analysis of “the most significant relation” theory, which, to some extent, will cause vaqueness and uncertainty to the choice of laws for piercing the veil. Concerning that the choice of law needs to take policy implication into account, this thesis submits that, for the choice of law for piercing the veil, the court can rely on the Article 1 of the Act of the Choice of law so as to substantive apply the Article 26 of the Act of the Choice of Law for the subject matter. The decisions and reasonings of the courts in the series of Lehmen Bother litigations in Taiwan was not aware of (1) the difference between traditional piercing and outsider reverse piercing and (2) the unigueness of applying the piercing the veil to corporate groups, as well as (3) the distinctiveness of the choice of law for piercing the veil. Yet, these cases still have signifigance to the Taiwanese legal regime. They are the groundbreaking cases which bring the outsider reverse piercing to light. Hopefully, this thesis can make some contribution to the theory of outsider reverse piercing the veil and its relevant issues, can advance the research among academics on the issues, and, in the long term, and can be a contribution for a better regulation of Taiwan legal regime on multi-national offshore conglomerates. Key Words: Outsider Reverse Piercing the Veil; Piercing the Veil of Corporate Groups; Enterprise Liability; Jurisdictional Veil Piercing; Choice of Laws; Lehmen Brother; Offshore Company; Multi-national Conglomerate.
Subjects
Outsider Reverse Piercing the Coporate Veil
Piercing the Veil on the Corporate Goups
Enterprise Liasbility Theory
Jurisdictional Piercing
the Choice of Law for Piercing the Corporate Veil
Lehmen Brother
Type
thesis
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