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Abuse of the corporate form – Piercing/lifting of the corporate veil

Iason Skouzos & Partners > Practice Areas  > Civil Law  > Abuse of the corporate form – Piercing/lifting of the corporate veil

Abuse of the corporate form – Piercing/lifting of the corporate veil

According to established case-law, piercing / lifting of the corporate veil is justified where:
i. the legal person is used as an interposed person,
ii. there exists a dominant shareholder who prevails in a manner such as that the company does not operate as a legal person, and
iii. the institution is being abused, i.e. insisting on the principle of separation would lead to results unacceptable by the law, and the dominant shareholder uses the legal person either to circumvent the law or to intentionally cause damage to third parties or to avoid complying with its obligations towards third parties.

Under Greek law, the corporate form is being abused where fundamental rules are being violated which justify the existence of the legal person as having rights and obligations, which are autonomous from those of the natural persons comprising it. The concept of legal person serves certain legal interests under certain lawful conditions. The legal person is the legal consequence of the existence of the constituent elements of certain provisions. Where such provisions are used in a manner contrary to good faith and morality and by exceeding their social and economic purpose (Article 281 of the Civil Code), the existence of the legal person is not justified (given that the institution has been abused), neither does its autonomy towards the legal or natural persons comprising it as its shareholders and, therefore, the shareholders comprising it are also directly liable for the debts of such legal person, in the sense that the purported corporate operations are actually operations of its dominant shareholder or partner which have been deliberately altered, and, conversely, the operations of the natural or legal person are associated to the company from which they are attempted to be unlawfully separated.

In case-law, piercing/lifting of the corporate veil has mainly be noted in cases where the dominant shareholder or partner uses the corporate form to circumvent the law or to intentionally cause damage to third parties or to avoid complying with its obligations towards third parties. In all such cases, the sanction required for avoiding the abuse is piercing/lifting the legal autonomy/corporate veil and shifting the consequences relating to it from the company to the shareholders or partners or, conversely, shifting the relevant consequences from the shareholders or partners to the company. Certainly, the conduct of the main shareholder or partner using the company as an interposed person when transacting constitutes abuse, where the company has no corporate organisation or does not have any business activity and it is essentially the main shareholder or partner who transacts under the corporate name for their own benefit. In addition to the partner operating by using the company as an interposed person, circumstances indicating abuse of the company’s corporate form also include the parallel conduct, by the partner, of identical business activities both on a corporate and on an individual basis, the legal person’s fictitious nature, the partner’s conduct giving the impression that he is personally liable.
To conclude, in any event, piercing/lifting the corporate veil is temporary and restricted, i.e. it does not eliminate the company’s legal personality, but it only sets aside the financial autonomy for the specific transaction – in the sense that the company or, as the case may be, its main shareholder or partner shall remain debtors being now jointly and severally liable (Article 481 of the Civil Code) for the damaging consequences (Article 926 of the Civil Code) of their transaction, i.e. an additional debtor is created to whom such consequences extend (spread) either from the company to the main shareholder, or partner, or conversely. According to established case-law, the corporate form has been abused, in line with the following indicative criteria — based on the doctrine and established case-law of the Greek courts — in the following cases:

• insufficient financing of the company (Tzouganatos, Recent perceptions on the liability of shareholders of sociétés anonyme [in Greek], p. 180)
• essential intermingling or coincidence of the corporate assets and the shareholder’s personal assets (Georgakopoulos, Company Law [in Greek], vol. 3, p. 547),
• selection of management directly by the shareholders, essentially abolishing the principles and rules of the national legal order,
• use of the company as the shareholder’s alter ego (Rokas, comment of Athens Court of Appeal judgement 1739/1995 EEmpD 1995, 212),
• the partner operating by using the company as an interposed person, or existence of a case of circumvention of the law, in which case the obligations binding the partner as natural person are also circumvented (Piraeus Single-Member Court of First Instance judgement 543/1998 EEmpD 1998, 310 comment by D. Avgitidis, Supreme Court judgement 537/2016 NOMOS),
• the person’s overall outward conduct which contradicts the existence of a company (I. Rokas, comment of Athens Court of Appeal judgement 1739/1995 EEmpD 1995, 215),
• the fictitious nature of the legal person (Passias, Société anonyme [in Greek], p. 184),
• the partner’s conduct giving the impression of personal liability (Piraeus Multi-Member Court of First Instance judgement 4208/1999 NoV 2000, 82, Thessaloniki Multi-Member Court of First Instance judgement 10399/1999 EEmpD 1999, 496, Athens Multi-Member Court of First Instance judgement 739/1998 EEmpD 1998, 795, Piraeus Multi-Member Court of First Instance judgement 834/1998 END 17, 302, Piraeus Single-Member Court of First Instance judgement 4543/1998 DEE 1999, 414, Avgitidis, The legal person’s autonomy [in Greek], EpiskED 1999, 92), and
• the lack of corporate organisation of business activity by the company, which essentially appears as an interposed person in the main shareholder’s or partner’s transactions, given that it is actually the main shareholder or partner transacting under the corporate name for their own benefit (Supreme Court judgement 537/2016 NOMOS).