Preserving Limited Liability
Mitigating the Inequities of Reverse Veil Piercing with a Comprehensive Framework
Ariella M. Lvov
Posted Sunday, April 8, 2018

Reverse veil piercing—a controversial exception to the traditional notion of limited liability—has enjoyed increased recognition in recent years. By facilitating access to a corporation’s assets for satisfaction of a wrongdoingshareholder’s personal debt, courts have enabled a doctrine that implicates many third parties: nonculpable shareholders, corporate creditors, and the corporation’s other constituencies. Unrestricted application of reverse veil piercing may prejudice these parties, impair the corporation’s ability to secure
credit, and thwart the policies underlying limited liability. In response, courts and commentators have suggested and adopted several approaches that seek to mitigate these inequities. None, however, are sufficient to both account for the conflicting interests of all involved parties and ensure that devious shareholders cannot hide personal assets behind the cloak of limited liability. This Note proposes a framework that is rooted in a strong default presumption of limited liability, but allows for a narrow window of recovery within strict parameters: claimants must demonstrate commingling of assets between the wrongdoing shareholder and the corporation; recovery is limited to the corporation’s surplus account, subject to an innocent shareholder exemption; and punitive damages may not be recovered from the corporation. In turn, courts complete the inquiry by balancing the claimant’s interests in recovery against those of the corporation’s other constituents. This approach accounts for the interests of all implicated parties, without wholly precluding recovery.