Prerequisites

According to the settled case law of the Federal Supreme Court, a legal entity’s separate legal personality may be disregarded where reliance on that separation amounts to an abuse of rights. This may be the case where the corporate structure is used to frustrate, avoid or unduly impede the creditor’s access to either the person standing behind the company or, conversely, to assets formally held by a company but economically attributable to the debtor. Piercing the corporate veil requires two cumulative elements:

  • First, the legal entity must be dependent on, and controlled by, another person in such a way that they form an economic unit. This presupposes economic identity between the legal entity and the controlling person, in the sense that their economic interests are effectively aligned.
  • Second, the controlling person must rely on, or hide behind, the legal entity’s separate legal personality in a manner that is abusive. Mere control or economic identity is therefore not sufficient; there must be a concrete abuse of the principle of separation.

If these two requirements are met, it may be justified for a court to disregard the company’s separate legal personality.

The term “piercing of the corporate veil” is typically used where a claimant seeks to reach through the company and hold the controlling shareholder or other person standing behind the company liable. By contrast, where a creditor seeks to attach or realise assets formally held by a legal entity in order to satisfy liabilities of the controlling shareholder or debtor, this is commonly referred to as “reverse veil piercing”.

Economic unit

Economic identity presupposes both the possibility of control and a relationship of dependence between the legal entity and the controlling person. Such dependence may arise in various ways and need not be based on share ownership alone. It may be lawful or unlawful, permanent or temporary, deliberate or incidental, and may result from shareholdings, contractual arrangements, close personal relationships, family ties or other circumstances. What matters is that the legal entity and the controlling person form an economic unit.

Abusive invocation of the principle of separation

Economic identity alone, however, is not sufficient. The reliance on the legal entity’s separate legal personality must also be abusive. The Federal Supreme Court has repeatedly held that a concrete abuse of rights must be established; a mere risk or possibility of abuse does not suffice. Whether such abuse exists must be assessed in light of all the relevant circumstances. In practice, abuse is typically established by an accumulation of conduct indicating that the separate legal personality of the entity is being invoked contrary to good faith.

According to case law, the following circumstances may indicate an abusive reliance on the separate legal personality of a legal entity:

  • Commingling of spheres and assets: The controlling person disregards the autonomy of the legal entity, for example by treating the entity’s assets as if they were their own and regularly using them for personal purposes.
  • External control or instrumentalization of the legal entity: The legal entity is used primarily to pursue the special interests of the controlling person, often at the expense of, or contrary to, the legal entity’s own interests.
  • Undercapitalisation: The legal entity is insufficiently capitalised to such an extent that its existence or ability to meet its obligations is put at risk, for example where an entity with no meaningful assets enters into transactions involving substantial risks to shield the shareholder from liability.

Procedural use cases

Piercing the corporate veil in debt enforcement proceedings

In debt enforcement proceedings against a debtor, piercing – or reverse piercing – of the corporate veil may become relevant where the debtor uses a legal entity or another third party to shield assets from enforcement. In such circumstances, enforcement against the debtor may fail, or lead only to limited recovery, because the assets targeted by the creditor are formally held not by the debtor, but by a legal entity or third party controlled by, or economically identical with, the debtor. Where the requirements for the piercing of the corporate veil are satisfied, such third party may be required to submit to the attachment and realisation of assets formally held by it but economically attributable to the debtor.

Piercing the corporate veil in attachment proceedings

Under Swiss law, creditors may, under certain circumstances, obtain the attachment of assets belonging to the debtor. This applies, in particular, where the creditor holds an enforceable title or where the debtor is neither domiciled nor resident in Switzerland and the matter has a sufficient connection to Switzerland.

The creditor seeking an attachment order must, among other things, identify the assets to be attached with sufficient specificity and make a credible showing that those assets belong to the debtor. Assets formally held by a third party may also be attachable if, from an economic perspective, they are attributable to the debtor. This may be the case where the third party acts merely as a straw man, where assets have been transferred to the third party to avoid enforcement, or where the requirements for piercing – or reverse piercing – the corporate veil are otherwise met.

If you would like to discuss the implications for Swiss enforcement or attachment proceedings, please contact our team members below.