Piercing of the corporate veil in Armenia. Are the existing regulatory features of corporate veil piercing sufficient to tackle certain corporate misdeeds committed in the Republic of Armenia?

Abstract

Piercing the corporate veil is the practice of disregarding the limited liability characteristic of a corporation in order to make its shareholders, either individuals or parent entities, bear personal liability for the corporation’s liabilities. In determining whether to apply corporate veil piercing, courts in many states such as the UK, Germany and also across the United States employ the theories of Instrumentality and Alter ego. In contrast, the Armenian regulation entails some elements and features of corporate veil-piercing, nevertheless, the practice of the courts with respect to the veil-piercing has been, in essence, avoided. Even though the trait of limited liability has shown to be an essential device that enables the entrepreneurs and investors to freely take risks behind the ‘veils’ of the legal entities meanwhile bringing economic development to its shareholders and the state, there are very often reasonable excuses for the courts to disregard that trait. Such reasons for the disregard of the limited liability shall particularly come into effect when the companies are exploited as a sham to avoid business debts or not to extend liabilities to the shareholders. In this regard, the legislative body of the given state should undertake the adoption of relevant laws that are sufficient to tackle such corporate misdeeds whereas the judicial body should enforce unconstrained decisions that aim to protect the rights of those who are affected by such misdeeds. This paper will define the corporations as well as observe the characteristics of corporations that are most closely connected to the doctrine and practice of veil-piercing. In the framework of the research, we will discuss the doctrine of corporate veil piercing and its application theories with the main focus on the U.S practice. Following the discussion of peculiarities of piercing of the corporate veil, a thorough analysis as regards to the doctrine will be conducted within the Armenian legal reality. More specifically, it will be shown that the existing regulatory features adopted by the legislator do not provide 1) the judicial body with necessary instruments to lift the corporate veil in number of cases and, 2) hence, they do not adequately protect those who are affected by the corporate misdeeds. The paper will later demonstrate that the Armenian regulations with respect to veil-piercing should be amended by the use of many practices and theories that the international practice offers.