Dmitry Kafanov commented for PrimaМedia the opinion of Chairman of Sup reme Arbitration Court on reasonability of introduction in the Russian court practice of lifting the corporate veil doctrine
Lifting the corporate veil doctrine is not only rather interesting from the justice and corporate management point of view. It is also part of legal institutions of well-developed democratic society where the society members are fully socially responsible for own actions and decisions. Such opinion was stated by Dmitry Kafanov, partner of Inmar Legal Ltd Legal Company.
To remind, at the annual meeting of arbitration courts heads, Chairman of Supreme Arbitration Court Anton Ivanov offered to seriously study the issue of introduction into the Russian court practice of lifting the corporate veil doctrine, widely used in Anglo-Saxon legal system. It allows, during the struggle with undue enjoyment of entity’s status to hold liable for corporate debts their actual proprietors even if they are formally are not owners of those companies.
SAC Chairman’s offer generated vivid discussion among the business establishment and practicing lawyers. As opined by many businessmen the above novelties will be just an additional instrument for pressure on business.
Dmitry Kafanov says that in general the said doctrine suggests holding liable by court award for company’s performance of any persons which exercise actual company management and prescribe corporate actions regardless from whether they are formal shareholders or not. Meantime, court subject to certain circumstances actually terminates the validity of provisions on company’s limited liability and examines operations as if they were done not by company but by real business owner.
Leading scholars stated the need to account for the actual objective of company’s establishment and understanding of the actual management decision making system inside a company when the concept of what is a legal entity as a separate subject of economic relations was formed in the late XIX century.
With the development of world’s economic system, change in market relations, the legal tools to overcome formal provisions on limited liability became quite often used in foreign court practice, especially in the USA, Hong Kong, Singapore. Courts, in the course of proceedings, got to account for the actual business objective for which a company or a group of companies was established. Should it prove that an entity was incorporated to be engaged in any illegal activity , as a tool of tax avoidance, as a veil to cover the real business, court shall decide to hold liable any person(s) standing behind such company.
The ability to hold liable in court any business beneficiaries regardless from any corporate instruments and structures created to minimize risks of claims from any third party is being discussed by the leading Russian lawyers. In particular, it is suggested to hold the person (s) controlling a company jointly liable for any operations when such operations were done by direct order of real owners.
Meantime, clear and understandable tools should be worked out to implements the doctrine of lifting the corporate veil to ensure that such legal institution would not act as a pressure tool for business.