Effective for all civil actions filed on or after July 9, 2019, the (Connecticut) Veil Piercing Act applies. Public Act 19-181
In a typical veil-piercing action, a party seeks to hold another person liable personally, for the actions of the person while he was acting on behalf of a corporation.
A common situation is as follows:
a corporate officer of Any Corp. lies about the financial condition of Any Corp. and purchases goods from B Corporation. Any Corp. sells the goods. Corporate Officer takes the profit from the sales out the Any Corp. and the Any Corp. dissolves. B Corporation seeks to collect the monies due, by suing corporate officer.
The common situation involves fraud by an officer or member of a corporation, who seeks to avoid personal liability by acting on behalf of the corporation.
Under the new Connecticut law, in order to pierce the corporate veil,
Sec. 2. (NEW) (Effective from passage and applicable to any civil action filed on or after the effective date of this section) (a) A statutory limitation on the liability of an interest holder of a domestic entity for a debt, obligation or other liability of such domestic entity, including without limitation, the limitation set forth in section 33-673 or 34-251a of the general statutes, may not be disregarded based upon a veil piercing doctrine, claim or remedy in connection with a transaction to which the entity is a party, unless a court finds by a preponderance of the evidence that: (1) The interest holder exerted complete domination and control over the management, finances, policies and activities of such entity with respect to such transaction; (2) such domination and control was used by the interest holder to (A) commit fraud or other intentional wrong against the person asserting such doctrine, claim or remedy, (B) intentionally violate a statutory or common law duty to such person, or (C) commit a deceitful or other unlawful act against such person; and (3) the domination and control exerted by the interest holder and the breach of duty or other act proximately caused injury or loss to the person asserting such doctrine, claim or remedy
The new law made a piercing claim difficult for several reasons
- There is a requirement that the interest holder (typically a corporate shareholder or officer) must have complete control over management, finances, policies and activities of the entity. This is likely only to occur in the case of a majority or sole shareholder, or an officer of a corporation.
- the interest holder either a. commit fraud or an intentional wrong (negligence is not sufficient) (fraud normally requires clear and convincing evidence) b. intentionally violate a statutory or common law duty to such person ( maybe a fiduciary duty) or c. deceitful or other unlawful act (possible lying about a material fact) (maybe an unfair trade practice)
- wrongful action caused injury or loss
Interestingly, the statute goes on to state
The failure of a domestic entity to observe formalities relating to the exercise of its powers or the management of its activities and affairs is not grounds for imposing personal liability on an interest holder of such entity for a debt, obligation or other liability of such entity based upon a veil piercing doctrine, claim or remedy.
(The prior argument was that if an entity failed to act like an entity – such as holding board meetings- the entity should be pierced. This argument is no longer valued.
Reverse Piercing no longer seems to be available as a remedy.
The statute states: No domestic entity shall be responsible for a debt, obligation or other liability of an interest holder of such entity based upon a reverse veil piercing doctrine, claim or remedy.
If you have any questions concerning corporate liability or debts, please feel free to contact:
Attorney Robert M. Singer, 2572 Whitney Avenue, Hamden, CT 06518
Serving New Haven County and All of Connecticut