PIERCING THE CORPORATE VEIL – WHAT DOES IT TAKE?

It is very difficult to pierce the corporate veil, as the plaintiff has to prove the debtor committed “fraud,” which is a criminal act.

The prerequisites to piercing the corporate veil are:

• The corporate entity must be a mere instrumentality of another entity or individual
• The corporate entity must be used to commit a fraud or wrong
• The plaintiff must have suffered an unjust loss or injury
• Commingling assets impairing corporate structure
• Proof submitted by creditor showing disregard of corporate formalities
• Failure to have annual shareholder meetings
• Failure to keep corporate minute books
• Proof that corporate assets have been misappropriated

The burden of proof, which means taking extraordinary steps of obtaining “items of proof,” sometimes requires a separate lawsuit. This in part is because of the criminal aspect, which requires convincing evidence as opposed to civil pursuit. In civil actions, the proof necessary to prevail is based upon what “a reasonable man would think or conclude.” Usually the investigative work required of criminal acts initiated by a creditor does not justify the return. If a debtor serves a sentence, restitution is impossible.

Under the Uniform Fraudulent Transfer Act, individuals and individuals of corporations can be pursued if the individuals realized a personal benefit. The burden of proving the benefit is the responsibility of the creditor.