The doctrine of piercing the corporate veil: towards an objective conception (STS No. 74/2016 18 February)

What does the lifting of the corporate veil consist off?

Remember the famous film of the 1990s called “The Firm” directed by Sydney Pollack and starring Tom Cruise, based on the book by the writer John Grisham, where a young lawyer discovers that the law firm where he works had created an entire corporate network that hides, among others, laundering money.

Well, the lifting of the corporate veil would allow forgetting that such corporate network exists and that responsibility would be placed on its shareholders or other companies belonging to the same corporate group or with identity of partners, purpose, address, etc.

In other words, it is a mechanism created by the jurisprudence, in which in Spain was used for the first time in STS No. 2000 / 1984 of 28 May, which aims to avoid using the legal entity of a corporation as an instrument for fraudulent purposes, understanding that it occurs when the purpose of the corporate is not what it is a priori own (the exercise of its commercial activities) but avoiding personal liabilities, with the payment.

Then, is it legitimate to carry out a commercial activity through a company?

Yes, it is completely legitimate to articulate a commercial activity through a company, so personal wealth is safe from any circumstance that could affect said commercial activity.

However, this separation of wealth cannot or should not be used in bad faith or abuse of law, to constitute “ghost companies” or mere lids as a firewall preventing the creditor to obtain the satisfaction of their credits.

It is not clear to me, when it can be applied?

In those cases where there is an action contrary to good faith. That is, that we constitute the society with the intention of “circumventing” the rights of others; or, in other words, through the creation of an entity with legal personality damages the legitimate right of third parties to obtain payment of their claims against the entity concerned.

Its becoming clearer to me

Do not rely on it. Jurisprudence has evolved from a purely subjective conception to a more objective conception.

I do not understand it, could you make it clearer?

Initially it was understood by the jurisprudence that mechanism used was an exceptional and restrictive one requiring fraud or using any of the “Latin phrases” lawyers like so much to employ “fraudis or animus consilium nocendi.” That is, there is a deliberate intention or a clear intent to cause harm or damage.

The initial concept has evolved as reflected in the STS No. 74/2016 of 18 February, towards a more objective assessment of requirements for the application of this mentioned doctrine, so the lifting of the corporate veil is also applicable in those cases where the parties have or should have had knowledge of the damage that determines the circumvention of their own personal liabilities and, among these, the payment of debts. That is, the jurisprudential trend is to consider that the person or entity who is behind the company’s perpetrador to the damage caused is also liable, provided that there is a damage and it can be proven that such a person or entity has or should have had previous knowledge of it, despite the fact that their intention was not to cause such damage.

Thanks for the attempt, leave it

It is very simple, keep in mind the following recommendations:

1.- Avoid giving your company a corporate structure that does not respond to a real need of the business just to evade liabilities.

2.- Investigate the intentions of the company you are going to do business with.

3.- Ultimately, seek counsel before, during and after carrying out the business operation.

April 2016

© 2016 José Luis Vecilla Camazón. All rights reserved

 

Image: © 1993 Paramount HE.

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