The High Frequency of Piercing the Corporate Veil in China

Abstract

Implicit in the company laws of common law jurisdictions is the notion of the corporate veil and the insulation of company shareholders from liability for debts of the company. The veil is not sacrosanct, however, and in appropriate circumstances courts will allow company creditors to pierce the veil and recover debts of the company directly from its shareholders. In contrast, the company legislation of China, supplemented by quasi-legislative rulings by the Supreme People’s Court, provides company creditors with an explicit right to pierce the corporate veil and pursue shareholders for satisfaction of company debts. While the rate of corporate veil piercing in China is much higher than that of other countries, as a previous study has found for the years 2006–2010 and which this study shows has continued in the years 2011–2014, it is not entirely clear that the difference is attributable only to the use of statutory remedies in preference to judicial doctrines used elsewhere. The result might also be a consequence of judicial interpretations of the law that go well beyond its literal and intended scope.