Piercing the corporate veil a comparative analysis of legal approaches in internal jurisdictions and the implications for vietnamese law

FOREIGN TRADE UNIVERSITY FACULTY OF LAW FINALS REPORT Piercing the Corporate Veil: A Comparative Analysis of Legal Approaches in Internal Jurisdictions and the Implications for Viet

FOREIGN TRADE UNIVERSITY FACULTY OF LAW

FINALS REPORT

Piercing the Corporate Veil: A Comparative Analysis of Legal Approaches in Internal Jurisdictions and the Implications for Vietnamese Law

Subject : Law For Business Code : PLUE401 Class : PLUE401(HK1-2324)1.2 Student : Nguyễn Trọng Hữu Student Code : 2212250043 Lecturer : Dr Ha Cong Anh Bao

Table of Content

L INTRODUCTION G0 GHI 00 00 3

H METHODOLUOOY Go 0 04 000.9 0 000 4

IH THEORETICAL FRAMEWOK s0 HH nh nh ng hen 5

Á AgenCcy (h€OFV co lọ TH lọ H TH TH 0n T090 mm

B Stakeholder theory 5

C Contract theory 5

TV COMPARATIVE ANALYSIS OF LEGAL APPROACHES IN INTERNAL JURISDICTIONS 6

A Analysis of Common Law Approaches 6

B Analysis of Civil Law Jurisdictions 6

C Analysis of International Treaties and Conventions on Corporate Veil piercing.6

D Comparison of Different Approaches 7

v CASE STUDIES 7

A Common law jurisdictions 7

1 United States 7

2 United Kingdom 7

B Civil law jurisdictions 5 5555 5 Họ nh nh cm nhớ 8

1 Germany 8

2 FYANCE sssssssssssscssssessssesssssssessssssssesessssesssssssssessssssssssssssssesessssssees 8

VI IMPLICATIONS OF PIERCING THE CORPORATE VEIL IN VIETNAMESE

TA ÔN chì HH hi HH ii Thị hi ni nh gi li nợ 8

A Overview of Vietnamese Law on Piercing the Corporate VelÌ - « 8

B Analyzing the Effects on Vietnamese Law 9

C Recommendations for Improvements in Vietnamese LAW se s5 s52 9

1 Clarifying the legal framework for piercing the corporate veil 9

2 Strengthening the legal system 9

3 Encouraging good corporate governance 9

4 Providing legal remedies for investors and other stakeholders 9

VI CONCLUSIONN 2 nh nh nh nh me „11

VI REEFERENGCCE 0G G0 cọ KT TÚ 0009 00 00v 12

I, INTRODUCTION

The legal concept of piercing the corporate veil has recently been at the center of many discussions due to its significant implications for corporate governance, investor protection, and access to justice Piercing the corporate veil denotes a judicial legal remedy that holds shareholders or directors personally liable for their business entities’ debts or wrongful acts In essence, this remedy ensures that individuals do not misuse the legal framework of corporations to isolate themselves from legal liability

In this thesis, an in-depth comparative analysis is presented conceming the legal approaches to piercing the corporate veil in various internal jurisdictions The primary jurisdictions analyzed are the United States, the United Kingdom, and Australia These countries were selected due to their established legal systems and significant commercial activities The objective of this thesis is to provide a comprehensive understanding of how

piercing the corporate veil operates in other jurisdictions to Vietnamese lawyers, law

students, and policymakers

The first chapter of this thesis provides a background overview of the concept of piercing

the corporate veil and its development in each country The second chapter critically

evaluates the legal standards and factors that courts consider when piercing the corporate veil Further, the third chapter examines the implications of piercing the corporate veil in

corporate governance and investor protection, while the fourth chapter analyzes the effects

on access to justice for parties seeking remedies

The final chapter of the thesis presents a critical comparison of the legal approaches to piercing the corporate veil in other jurisdictions and their implications for Vietnamese law

By drawing on the previous chapters’ analysis, this chapter explores how the Vietnamese legal system can integrate piercing the corporate veil into its legal framework Ultimately, this thesis argues that thoroughly analyzing comparative approaches to piercing the

corporate veil can inform Vietnamese law and enhance the efficiency and effectiveness of

its legal system

Piercing the corporate veil is a topic that examines how corporations can be held accountable for their actions when individuals associated with them may be seeking to

evade personal liabilities This study is proposing a comparative analysis of the legal approaches to piercing the corporate veil in various jurisdictions and how the concept can

be applied under Vietnamese law

To achieve these objectives, a diverse methodology has been planned It includes a literature review, legal analysis, qualitative analysis of cases, expert interviews, and comparative analysis The literature review will conduct a thorough analysis of academic publications that focuses on the various legal approaches taken concerning piercing the corporate veil across different jurisdictions The review will include books, journal articles, and policy reports on corporate law, among others

The legal analysis of internal jurisdictions will entail a comparative analysis of legal practices worldwide regarding piercing the corporate veil The focus will mainly be on corporate laws governing different jurisdictions

Alongside the legal analysis, a qualitative analysis of cases will aim to highlight the

implications of different legal approaches taken in various jurisdictions Each country's

successful case studies for piercing the corporate veil will give insights into the effectiveness of this concept in each respective jurisdiction

The analysis will also include relevant cases from each jurisdiction providing a detailed comparison of the legal approaches used, and its resulting implications

In conclusion, the outcomes from the research will be summarized, highlighting the significant findings Recommendations relating to the improvement of Vietnamese laws

on piercing the corporate veil based on this study's results will also be presented In

summary, the methodology employed in researching piercing the corporate veil will ensure objectivity and an informative outcome

I THEORETICAL FRAMEWORK

A Agency theory posits that there exists a principal-agent relationship in which an agent

serves as a representative of the principal, such as a manager representing a shareholder The theory focuses on the potential conflicts that may arise from the differing interests and goals of the principal and agent and how such conflicts are resolved through contracts and

monitoring mechanisms

B Stakeholder theory suggests that a firm has ethical responsibilities towards several

stakeholders, including employees, investors, suppliers, customers, and the community at

large The theory emphasizes the importance of long-term relationships with stakeholders,

with a focus on creating value for all stakeholders rather than just shareholders

C Contract theory proposes that individuals and organizations form agreements or contracts to achieve mutual benefits or goals The theory emphasizes the importance of the parties’ ability to enforce their contractual arrangements and how the nsk of breach may

influence the agreement's design and execution

TV COMPARATIVE ANALYSIS OF LEGAL APPROACHES IN INTERNAL

JURISDICTIONS

A Analysis of Common Law Approaches:

The legal doctrine called corporate veil piercing is utilized by courts in common law jurisdictions to release the shareholders, directors, and officers of a company from their

limited liability privileges and hold them liable for the actions of the company Countries

like the USA, UK, Canada, and Australia have a sophisticated and intricate legal system for examining the legal identity of companies, also referred to as piercing the corporate veil

The courts consider fraudulent, unjust, or wrongful activity on the part of the directors or

shareholders, insufficient capitalization, and a lack of distinction between the corporation's legal identity and that of its shareholders and officers as the most common factors The

doctrine of agency and alter ego 1s also frequently applied in common law courts to determine whether shareholders had complete control over the company's actions and should, therefore, be held accountable for them

B Analysis of Civil Law Jurisdictions:

In contrast, civil law jurisdictions place a higher significance on the principle of separate legal personality and have a more limited approach to piercing the corporate veil Continental European countries, such as Germany, France, and Italy, provide corporations with extensive protection against actions brought on by their shareholders

Piercing the corporate veil is only permissible in extraordinary circumstances, like fraud,

misuse of legal personality, or during bankruptcy proceedings Additionally, the burden of proof is considerably higher, and the plaintiff must present convincing evidence of

fraudulent conduct to justify disregarding the separate legal personality principle

C Analysis of International Treaties and Conventions on Corporate Veil piercing: Treaties and conventions related to piercing the corporate veil are scarce on an international level Nevertheless, governing rules in particular surisdictions usually comply

with applicable conventions, leading to confusion in contractual breaches across borders and more challenging controversies surrounding stakeholders' rights For instance, the

infamous Panama Papers scandal, the most extensive data breach on record, exposed how offshore companies facilitate money laundering, arms dealing, and other illicit actions

D Comparison of Different Approaches:

When it comes to piercing the corporate veil, there is a crucial distinction between the approaches of common law and civil law Common law tends to adopt a more flexible approach, while civil law has a heightened emphasis on legal personality Common law

courts apply multiple examinations to determine if veil piercing 1s appropriate, whereas

civil law only considers this course of action in rare circumstances

To sum up, the legal jurisdiction is heavily relevant to the approach taken towards the

piercing of the corporate veil Common law systems adopt a more extensive approach,

reflecting the focus points of justice and impartiality as opposed to corporate identity In contrast, civil law systems mainly concentrate on legal personality Nevertheless,

international regulations leave plenty of room for interpretation by national courts,

operating under their respective legal principles and heritages

V CASE STUDIES

A Common law jurisdictions

1 United States

Salomon v Salomon & Co Ltd In the famous case of Salomon v Salomon & Co Ltd, the

House of Lords held that a company holds a distinct legal personality from its shareholders, and the veil of incorporation can only be pierced in exceptional

circumstances The ruling implied that Mr Salomon was not liable for his company's

debts even though he owned the majority of its shares and was the managing director

Salomon v Salomon & Co Ltd established the concept of separate legal personality, which has significantly influenced corporate law in many countries

2 United Kingdom

Adams v Cape Industries Plc In the case of Adams v Cape Industries Plc, the court held that a parent company could not be considered responsible for the actions of its subsidiary, even though the subsidiary was fully owned by the parent and was created specifically for

a particular project The court stated that it was necessary to demonstrate that the parent had controlled the subsidiary in such a way as to make it a mere agent or puppet of the

7

parent This case signifies that, while the concept of separate legal personality is fundamental in corporate law, it must be enforced in the light of other legal principles, such as control and agency

B Civil law jurisdictions

1 Germany

BGH NZG 2007, 1116 In the case of BGH NZG 2007, 1116, the Federal Court of Justice held that the corporate veil can be pierced to make individual shareholders personally

responsible for a corporation's obligations, even if the corporation is financially stable and

has not acted fraudulently or illegally The court argued that this was necessary to prevent injustice and to safeguard the creditors’ legitimate interests This case exemplifies that

German courts could be more willing than courts in other countries to permit the piercing

of the corporate veil

2 France

CA Paris, 12e ch., 23 yuin 2005, SA Affimex c Sarl Apcom The case of SA Affimex c Sarl Apcom in CA Paris, 12¢ ch., 23 juin 2005, established that the corporate veil can be pierced to hold a shareholder accountable for a corporation's obligations if the shareholder abused its power within the company and acted in bad faith The court claimed that the principle of separate legal personality must be balanced against the principle of good faith and that the veil should not shield individuals who use it to commit fraud or avoid their

responsibilities This case indicates that French courts could be willing to pierce the veil in

cases involving abuse of power and bad faith

VI IMPLICATIONS OF PIERCING THE CORPORATE VEIL IN VIETNAMESE

LAW

A Overview of Vietnamese Law on Piercing the Corporate Veil

In Vietnam, the concept of piercing the corporate veil 1s not explicitly recognized in the law However, the general principles of corporate law in Vietnam allow for shareholders, directors, and officers of a company to be held liable for the actions of the company in certain circumstances This can be done through a variety of legal doctrines and concepts, such as joint liability, agency law, and fraud

Vietnamese law recognizes joint and several liability, which means that each shareholder

1s responsible for the debts and obligations of the company Additionally, agency law

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allows for individuals to be held responsible for the actions of the company if they acted

on behalf of the company within the scope of their authority In cases of fraud, the courts

can also hold the individuals responsible for the wrongdoing of the company

B Analyzing the Effects on Vietnamese Law

The lack of explicit recognition of the concept of piercing the corporate veil in Vietnamese law can create uncertainties for businesses and investors It can also limit the ability of courts to hold individuals responsible for the actions of the company, particularly in cases where there may be a need to pierce the corporate veil

Additionally, without clear guidelines on when and how the courts can pierce the corporate veil, there 1s a risk of abuse or misuse of the concept This can lead to inconsistencies and unpredictability in the legal system, which can undermine the integrity and credibility of the courts

C Recommendations for Improvements in Vietnamese Law

To address the uncertainties and risks associated with the lack of explicit recognition of

the concept of piercing the corporate veil, there are several recommendations for

improvements that can be made to Vietnamese law These include:

1 Clarifying the legal framework for piercing the corporate veil: Vietnamese law should explicitly recognize the concept of piercing the corporate veil and provide clear

guidelines for when and how the courts can do so

2 Strengthening the legal system: This can be done by improving the capacity and resources of the courts, enhancing transparency and accountability, and promoting consistency and predictability in the legal system

3 Encouraging good corporate governance: Good corporate governance practices can

help prevent the need for piercing the corporate veil by promoting accountability and transparency within companies

4, Providing legal remedies for investors and other stakeholders: Vietnamese law

should provide legal remedies for investors and other stakeholders who may be affected

by the actions of a company, such as the ability to sue for damages or seek injunctive relief

By implementing these recommendations, Vietnamese law can strengthen the protection

of investors and other stakeholders, enhance the integrity and credibility of the legal

system, and promote a more conducive environment for business and investment

For example, in a case where a company engages in fraudulent activities, shareholders and

directors who knowingly participated in or knowingly benefited from the fraud should be

held personally liable for the damages caused to the victims In such a case, if Vietnamese law explicitly recognized the concept of piercing the corporate veil, the court could hold these individuals responsible and order them to pay damages However, without such recognition, the court may struggle to hold these individuals responsible in a meaningful way