A CORPORATION AND ITS ALTER EGO

Piercing or lifting the corporate veil

As a general rule under Curaçao law, shareholders of corporate entities with limited liability do not risk more than their capital contribution. Such shareholders cannot be held liable for their corporations’ debts or obligations. These corporations are recognized as legal entities separate from their shareholders and managing directors. However, in exceptional cases, the veil of limited liability is pierced and a corporation’s debts or obligations are attributed to the shareholder, which may be a parent corporation.

The distancing of shareholder from corporation allows for individuals to engage in business while limiting their personal liability should the corporation fail. However, if a shareholder uses his company as his alter ego by intermingling its funds with his own and not observing corporate formalities, this may result in undercapitalization which may give rise to shareholder liability. Shareholders will be held liable if such inadequate capitalization is the result of utilizing corporate control for a fraudulent, or otherwise ‘ illegal ‘ purpose.

If a shareholder misleads a third person regarding the financial status of his corporation so that the third person believes that the corporation has more capital than it actually has, then the shareholder could be held personally liable for his own behavior. Such a claim would normally be based on the concept of tort. Please note that for instance a credit institution (bank) could be equally held liable if it creates, through its credit policy, an appearance of creditworthiness on the part of the borrowing corporation, which misleads third party creditors of the corporation.

Both the rules on tort and the rules of common corporate law provide a basis for piercing of the corporate veil in Curaçao. In my opinion, under Curaçao law, piercing the corporate veil in most cases goes hand in hand with the concept of tort (wrongful act, in Dutch ‘onrechtmatige daad’). The common law alter ego doctrine is similar to the Curaçao law of veil piercing, in that it requires a showing that the corporate form has been disregarded or abused to avoid a legal obligation.

Finally, in the case of Citco v. Krijger, the Hoge Raad (Dutch Supreme Court) 9 June 1995, NJ 1996, 238, held that:

he who has full or predominant control over two companies is capable of abusing the identity difference between such companies and that such abuse cannot be tolerated in law.

Karel Frielink
Attorney (Lawyer) / Partner

(28 February 2014)

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