THE NEED FOR CONTINUED VIGILANCE AGAINST VEIL-PIERCING
There is a long history of litigants in the US using the doctrine of piercing the corporate veil, which allows a court to disregard the limited liability protections the corporate form offers, to attempt to collect on the liabilities of a corporation from its owners. But the perennial nature of those efforts should not be a reason for companies or their counsel to grow complacent in taking steps to minimise the risks of veil-piercing. In fact, current conditions and attempts by sophisticated plaintiffs to expand the doctrine suggest a need for renewed focus on these issues. For example, according to Refinitiv, global M&A activity in the first quarter of 2021 was the highest Q1 on record. This unprecedented level of activity carries with it a corresponding increase in circumstances where acquirers may be assuming the historic liabilities of their targets, including litigation exposure. This article examines the highly fact-dependent nature of the veil-piercing analysis, differences across jurisdictions within the US, and novel attempts to expand the doctrine. It also addresses best practices and related considerations for companies to consider in connection with efforts to ‘ring-fence’ entities and reduce the risk of veil-piercing.
In assessing a claim for veil-piercing, the law in most US jurisdictions requires a court to consider the extent of the parent entity or owner’s control over the entity whose corporate form is being challenged.
Jul-Sep 2021 issue
Cleary Gottlieb Steen & Hamilton LLP