Reverse-Piercing of the Corporate Veil in Canada

Abstract

In the most common type of veil piercing, the plaintiff is trying to make a shareholder liable for the debts of the corporation. It is less well recognized that there is a second type of claim that has sometimes been referred to in Canadian courts as piercing the corporate veil, where the claim is not to make a shareholder responsible for the debts of the corporation, but the reverse. The plaintiff states that the defendant is the beneficial owner of assets in a corporation. The court is asked to disregard the separate corporate personality and use the corporation’s assets to pay the defendant’s debt. This is widely recognized as a separate category and referred to as “reverse piercing” in the United States. There are good legal grounds for allowing such a claim in certain circumstances. It could be justified either because the corporation holds the property in trust, or because the failure to pay the debt is oppressive. In the latter case, the court has discretion under the Business Corporations Act to craft whatever order is necessary to create an equitable remedy. In Yaiguaje v. Chevron Corporation, the majority of the Ontario Court of Appeal did not appreciate the variety of usages of piercing the veil. The dissenting judge correctly noted that the precedents relied on by the majority were “decisions respecting liability, not judgment enforcement decisions.” It stands to reason that the hurdle for reverse piercing should be lower than in the more common claims that seek to circumvent shareholder immunity.