Overview of Reverse Piercing
Reverse piercing occurs when a creditor goes after a corporation’s assets to satisfy a shareholder’s personal debt. This contrasts with traditional veil piercing, where shareholders’ assets pay corporate debts.
Key Issues in Reverse Piercing
Important considerations include the unity of owner/company interests, fraud/injustice, misuse of corporate form, and harm to third parties. Most courts assess the owner’s misuse of company assets rather than the company’s misuse of liability protection.
Reverse Veil Piercing in Different States
Some states permit reverse piercing only in cases of serious wrongdoing, such as fraud. Rules vary across states, with Delaware, California, North Carolina, and Virginia allowing this practice.
When Can the Corporate Veil Be Pierced?
Courts are cautious about allowing veil piercing or reverse veil piercing, typically permitting it only in cases of serious wrongdoing like fraud. Requirements for piercing the corporate veil may vary depending on the state laws.