(Tiểu luận) analysis of legal approaches in internationaljurisdictions and the implication for vietnameselaw

Trang 1 FACULTY OF LAW**********FINAL-TERM EXAMINATION REPORTPIERCING THE CORPORATE VEIL: A COMPARATIVEANALYSIS OF LEGAL APPROACHES IN INTERNATIONALJURISDICTIONS AND THE IMPLICATION FOR

FACULTY OF LAW

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FINAL-TERM EXAMINATION REPORTPIERCING THE CORPORATE VEIL: A COMPARATIVE ANALYSIS OF LEGAL APPROACHES IN INTERNATIONAL JURISDICTIONS AND THE IMPLICATION FOR VIETNAMESE

LAW

Student name: Nguyen Minh Hien Student ID: 2112250033 Course: Law on Enterprises Class code: PLUE401(HK1-2324)1.2 Instructor: Dr Ha Cong Anh Bao

TABLE OF CONTENTS

TABLE OF CONTENTS 2

INTRODUCTION 3

PART 1: Concept of Piercing the corporate veil 4

1 Definition and Historical Development 4

2 Purpose and Rationale Behind Piercing the corporate veil 4

3 Legal Principles Governing Piercing the corporate veil 4

PART 2: Legal Approaches to Piercing the corporate veil in International Jurisdictions 6 1 Common Law Jurisdictions 6

2 Civil Law Jurisdictions 7

PART 3: Implications for Vietnamese Law 10

1 Current Legal Framework in Vietnam 10

2 Comparative Analysis of International Approaches 11

3 Potentialities, Challenges and Considerations for Adopting Similar Approaches in Vietnam 12

4 Potential Benefits and Drawbacks of Adopting Piercing the corporate veil 13

5 Recommendations for Vietnamese Law 14

Conclusion 15

References 16

This report aims to explore the concept of Piercing the corporate veil andexamine its legal approaches in some international jurisdictions: the UnitedStates, the United Kingdom, Germany, and France These jurisdictions wereselected to provide a comprehensive understanding of the different legal systemsand approaches to Piercing the corporate veil in both common law and civil lawjurisdictions

Furthermore, the report will assess the implications of these legal approaches forVietnamese law, considering Vietnam's growing economy and increasing foreigninvestment It will evaluate whether the existing legal framework adequatelyaddresses the challenges associated with Piercing the corporate veil and providessufficient protection for stakeholders

In conclusion, this report provides a comprehensive overview of Piercing thecorporate veil, its legal approaches in international jurisdictions, and theimplications and recommendations for Vietnamese law It contributes to theongoing development and improvement of corporate governance and legalframeworks in Vietnam, promoting a more robust and investor-friendly businessenvironment

PART 1: CONCEPT OF PIERCING THE CORPORATE VEIL

1 Definition and Historical Development

Piercing the corporate veil Piercing the corporate veil is a legal concept thatallows courts to disregard the separate legal entity of a corporation and holdindividuals personally liable for the corporation's actions or debts It is a judicialremedy that pierces through the corporate structure to reach the individualsbehind it The concept has its roots in common law and has evolved over timethrough judicial decisions and legal precedents

2 Purpose and Rationale Behind Piercing the corporate veil

of Piercing the corporate veil is to prevent misuse or abuse

of the corporate form The concept serves as a safeguard to ensure thatindividuals cannot hide behind the corporate shield to escape liability for theirwrongful actions It is based on the notion that if a corporation is being used as amere facade or instrumentality for fraudulent or unfair purposes, then theindividuals responsible should be held accountable

behind Piercing the corporate veil is to achieve justice and equity

It recognizes that while the corporate structure provides numerous benefits, such

as limited liability for shareholders, it should not be used as a shield to perpetratefraud, injustice, or unfairness By iercing the corporate veil, courts can ensurethat individuals who exercise control over the corporation and benefit from itsactivities are held responsible when necessary

3 Legal Principles Governing Piercing the corporate veil

The legal principles governing Piercing the corporate veil vary amongjurisdictions, but there are common factors and criteria considered by courtswhen determining whether to pierce the corporate veil These include:

and ownership between the individuals and the corporation, treating them as oneand the same If the corporate form is merely an alter ego of the individuals,disregarding the corporate entity may be justified.

Piercing the corporate veil may be appropriate incases involving fraud, illegality, or wrongful conduct If individuals use thecorporate structure as a tool to deceive or harm others, courts may disregard thecorporate entity to hold them accountable

Courts consider whether the corporation hasfollowed proper corporate formalities, such as maintaining separate finances,holding regular meetings, and keeping accurate records Failure to observe theseformalities may weaken the corporate structure and increase the likelihood ofpiercing the veil

Insufficient capitalization of the corporation may lead

to Piercing the corporate veil If the corporation lacks adequate funds to meet itsobligations or is undercapitalized deliberately, courts may hold individualspersonally liable

Courts evaluate the overall fairness of the situationand whether allowing the individuals to hide behind the corporate form wouldresult in an unjust or inequitable outcome

The application of these legal principles may vary depending on the jurisdiction and the specific facts of each case Courts exercise discretion in Piercing the corporate veil, ensuring that it is applied judiciously to achieve justice and protect the interests of stakeholders.

PART 2: LEGAL APPROACHES TO PIERCING THE CORPORATE

VEIL IN INTERNATIONAL JURISDICTIONS

The United States, the United Kingdom, Germany, and France were chosen asthey represent major global economies with different legal systems (common lawand civil law) These countries have extensive case law and legal precedentsregarding Piercing the corporate veil Apart from them, other countries such asJapan, Australia, Canada, and the Netherlands also have developed andsignificant legal systems in this area

1 Common Law Jurisdictions

a United States

In the United States, Piercing the corporate veil is primarily governed by statelaw, with variations across jurisdictions Courts consider several factors whendetermining whether to pierce the corporate veil, including:

Commingling of assets between the corporation and its shareholders.Failure to observe corporate formalities

Undercapitalization or insufficient funds to meet obligations

Fraudulent or wrongful conduct

Using the corporation to evade legal obligations

Dominant shareholder control over the corporation

Case Law Examples:

In the landmark case of "Minton v Cavaney" (1961), the court held that thecorporate veil could be pierced if the corporation was a mere instrumentality oralter ego of the dominant shareholder, and justice required holding theshareholder personally liable

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The case of "Walkovsky v Carlton" (1974) established that the corporate veilcould be pierced if the corporation was used to perpetrate a fraud or injustice,even if it was properly formed and observed corporate formalities.

The case of Salomon v Salomon & Co Ltd (1897) is indeed

a landmark case that established the principle of separate legal personality.However, subsequent case law has recognized exceptions to this principle,allowing for Piercing the corporate veil under certain circumstances

Case Law Examples:

In the "Adams v Cape Industries plc" (1990) case, the court held that thecorporate veil could be pierced if a subsidiary company was used as a merefacade to avoid legal obligations

The "Jones v Lipman" (1962) case demonstrated that the court may disregard thecorporate veil if a company is established to defraud creditors

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Case Law Examples:

The "ESCO Engineering Supply Company v Harza Engineering Company"(1972) case established that the corporate veil could be pierced if the corporationwas a mere instrumentality of the shareholders, and the shareholders' actionscaused harm

b France

In France, Piercing the corporate veil is known as the concept of

French law allows forthe disregard of legal personality when a company is used to commit fraud orwhen there is an abuse of corporate form to evade legal obligations or harm thirdparties

Case Law Examples:

The "Société Thévenin et Cie v Société de Construction des Batignolles" (1990)case demonstrated that the corporate veil could be pierced if there was an abuse

of corporate form to evade obligations or perpetrate fraud

United Kingdom, Piercing the corporate veil is primarily guided by case law and principles, considering factors such as fraudulent conduct, commingling

of assets, and failure to observe corporate formalities In civil law jurisdictions like Germany and France, the legal basis for Piercing the corporate veil lies in statutes and general principles, aiming to prevent abuse of the corporate form and protect stakeholders Understanding these legal approaches provides essential insights for evaluating the implications and potential reforms related

to Piercing the corporate veil in Vietnamese law.

PART 3: IMPLICATIONS FOR VIETNAMESE LAW

1 Current Legal Framework in Vietnam

The misuse of the limited corporate form, particularly single-member limitedliability companies (LLC), has been a concern in Vietnam The ease ofestablishing these companies, which do not require financial proof and can beestablished by an individual, has led to some instances of fraudulent activity Forexample, the director of Dai Duong Travel Company and his two nephews werecharged with fraud and embezzlement amounting to over 70 billion VND

While Vietnamese corporate law has recognized and established certain legalframeworks to apply Piercing the corporate veil, there are limitations anddeviations from its core principles

There are two main perspectives on Piercing the corporate veil in Vietnam:

However, both perspectives do not fully capture the essence of Piercing thecorporate veil The first approach limits Piercing the corporate veil to specifictypes of companies, diverging from its broader application to all businesses andcontributors/managers The second approach's provisions primarily focus onpunishing abuses of corporate identity, rather than embodying the fundamentalprinciple of Piercing the corporate veil, which is to hold individuals personallyliable for the company's actions

embraced the principles of Piercing the corporate veil, and the current provisions only reflect certain aspects of it

2 Comparative Analysis of International Approaches

The misuse of the limited corporate form can be found in both Vietnam andother countries

Both Vietnam and the other countries (US, UK, Germany, France) recognizeand apply the principle of Piercing the corporate veil in corporate law Theyrequire evidence of abuse of corporate structure or fraudulent behavior beforeapplying Piercing the corporate veil

The extent of misuse and the methods employed can vary from country tocountry This is influenced by factors such as the ease of companyincorporation, enforcement of corporate governance practices, and theeffectiveness of legal and regulatory frameworks For example, in Argentina, single-shareholder corporations (SAUs) are not allowed to be incorporated orwholly owned by other SAUs In Australia, a proprietary company is a limited liability company designed for 50 shareholders or fewer and is simpler andless expensive to administer than a public company

The scope of application of Piercing the corporate veil in Vietnam is morelimited compared to the other countries Piercing the corporate veil inVietnam is typically applied only in specific cases, such as limited liabilitycompanies and joint-stock companies In contrast, the other countries canapply Piercing the corporate veil to all types of businesses

assets, inadequate capitalization, fraudulent conduct, and personal benefit.However, the approach and specific criteria may vary between countries.The countries have different legal provisions regarding personal liability afterPiercing the corporate veil is applied Specifically, regulations on liability andpenalties can vary significantly between countries, based on influence ofcultural, economic, and legal systems on the application of Piercing thecorporate veil For instance, countries with a strong tradition of corporategovernance may have stricter criteria for Piercing the corporate veil.However, the concept and application of Piercing the corporate veil continue

to evolve with changing business practices and legal thought and therefore,could change over time

In conclusion, while Vietnam and the other countries have already recognized and applied Piercing the corporate veil in corporate law, there are differences

in the scope of application, criteria, and regulations related to personal liability after Piercing the corporate veil is applied Countries like the US, UK, Germany, and France have a more flexible approach and a broader application of Piercing the corporate veil compared to Vietnam.

3 Potentialities, Challenges and Considerations for Adopting Similar Approaches in Vietnam

Vietnamese courts have not applied Piercing the corporate veil Instead, they useother tools to address issues between third-party victims and company managers,directors, or shareholders

However, there are legal phenomena that could potentially apply Piercing the corporate veil in Vietnam

The ease of establishing single-memberlimited liability companies in Vietnam has led to misuse by profit-seeking

Travel Company

Some multinational corporationsestablish subsidiaries in tax havens to evade taxes, despite expanding theiroperations in Vietnam Piercing the corporate veil could potentially hold thesecorporations accountable if prerequisite conditions are met

To apply this approach, there are certain challenges and considerations:

Balancing the ease of business establishment with the potential for misuse

Determining the legality of company structures and valuing transactionsbetween companies

Proving prerequisite conditions for the application of Piercing the corporateveil

4 Potential Benefits and Drawbacks of Adopting Piercing the corporate veil

a Advantages of Piercing the corporate veil

Adopting internationalapproaches can enhance creditor protection and safeguard the interests of otherstakeholders by holding responsible individuals accountable for corporateactions

Piercing the corporate veil can deter fraudulentactivities and prevent the abuse of the corporate form for personal gain,promoting a fair and transparent business environment

b Disadvantages and Potential Risks