“PIERCING (LIFTING) THE CORPORATE VEIL”

Analysis of the institute from aspects of doctrine, legislation and case law (domestic and comparative)

            On March 28, 2019 in the filed of Company Law was organized a seminar by the Center for the Education of Judges and Public Prosecutors of the Republika Srpska. Educator Staša Tomić, a judge at the Banja Luka District Commercial Court, presented a paper on “Liability of a Legal Entity for Damage Caused by its Authority” and a presentation of Dr. Jovana Pusac, a lawyer from Banja Luka, entitled „Piercing (lifting) the corporate veil“.

            The Institute for the Piercing (lifting) the corporate veil, or as the Legislature calls it the Abuse of a Legal Entity, is an institution of Company Law in the service of protection of creditors of those companies whose liability of members is structured according to a limited liability model (“the founder of the company bears the risk of the business up to the height of his founder’s stake”).

            Bearing in mind that in our practice have been settled the hesitations and obstacles the application of this institute, and at the same time, the case law in the region, especially in the Republic of Serbia, records a significant number of judgments in which the claims for the piercing (lifting) the corporate veil of the company founded by the respondent were adopted, presentation of Dr. Jovana Pušac was intended to light upon and approximate this from the theoretical, legislative and practical aspects, so that it could finally come to life in our jurisprudence, even though it was edited by the legislator three decades ago.

        It is particularly emphasized that the application of the institute of piercing (lifting) the corporate veil, such as sui generis to a legal institution and a specific legal phenomenon, does’t necessarily require proof that a company itself isn’t able to fulfill its obligation. The Company is not even passively legitimized in this dispute. This is because there is not about liability for damages, but about the legal liability of a member of the company for abusing the limited liability rules for the company’s obligations. Therefore, in a dispute over a lawsuit for piercing a legal entity, the creditor of a capital company is actively legitimized against a member of that company (of the commander, a member of a LLC, a stockholder), subject to the following conditions: 1) that the act constituting an abuse was carried out by a) the company being misused for illegal or fraudulent purposes, or by b) disposing of the property societies as with their own, ie. that as a company doesn’t exist, 2) that at the time of the abuse there was a claim on the company, regardless of its maturity, it is important that it matured at the time of filing the lawsuit, 3) that the abuse was committed by a member of the capital company (commander, member of the LLC and stockholder), 4) that the lawsuit is filed within 3 years from the date of maturity of the contractual obligation (Article 374 of the Law of Obligation), and for non-contractual obligations, within 3 years from the date the plaintiff learned of the damage and the pest, and not later than 5 years since the damage occurred (Article 376 of the Law of Obligation), 5) that the lawsuit was filed with the commercial court, as really competent, 6) that there is a causal link between the act of a member of the company and the abuse of the company for illegal and fraudulent purposes, or that there is a causal link between treating a member of the company and disposing of the property of the company as his own, ie. as if the company doesn’t exist, the burden of proof being on the plaintiff – creditor.

            Since, among the conditions for the application of the institute Piercing (lifting) the corporate veil, the most sensitive link are means of proof, special attention was given in the presentation of evidence by an expert in the economic profession, a certified forensic accountant, bearing in mind that forensic accounting is a special branch of accounting that deals exclusively with assessments legal and professional recording and reporting.