Asset Protection- Creditor Remedy “Reverse Veil Piercing”

In a “veil piercing case”, a court is requested to disregard a corporate entity so as to make available the personal assets of its owner to satisfy a liability of the entity.

When the corporate entity acts as a shell for asset protection purposes, has no actual business purpose, and there is a showing of abuse by the debtor, creditors may not be limited solely to a charging order and may instead be able to apply the equitable remedy of “reverse veil piercing” making the entity liable for the debtor’s personal debts (See: C.F. Trust v. First Flight Ltd. Partnership (306 F.3d 126, CCA-4 2002).

Under EPICA v. Swiss Bank Corp., 507 So. 2d 1119 (Fla. 3d Dist. App. 1987), the court test is stated to determine if there is a “reverse piercing action”, based on two criteria:

1. Whether the debtor had ownership and control of the entity;

2. Whether the debtor used the entity to secrete personal assets as a means to deceive, defraud or mislead his personal creditor.

Under the “reverse piercing test”, a creditor does not need to prove that the debtor committed actual fraud. The test requires that the trial court find that the defendants committed an unjust act in contravention of the plaintiff’s rights.

To succeed in a “reverse piercing action”, the creditor:

1. Must name the entity directly as a party, and

2. Show that an unjust act in contravention of the creditor’s legal rights occurred.

Tags:

Comments are closed.