Piercing Corporate Veils under Revised PRC Company Law Provisions
Revised PRC Company Law expands debt liability across sister affiliates and forces single shareholders to prove independence or assume full joint liability.
Asset Commingling Evidence
Meaning
Financial records demonstrating the lack of separation between a corporation and its owner provide the basis for piercing the corporate veil. Asset commingling evidence consists of bank statements and physical logs showing that corporate funds or property have been used for personal expenses without proper documentation.
Audit Trail
Litigation success depends on a clear history of transactions. Creditors collect asset commingling evidence to show that the company is a mere shell or alter ego of the shareholder.
Operational Transparency
Financial integrity fails when a shareholder pays personal mortgage debts or utility bills from the business account. Courts scrutinize asset commingling evidence such as the absence of separate financial reports or the free transfer of inventory between various entities owned by the same person. Without distinct accounting, the separate legal personality of the company disappears in the eyes of the law.
Evidentiary Burden
Proof of a confused asset structure must reach a level where the company no longer functions as an independent economic unit. A successful presentation of asset commingling evidence allows the court to hold the shareholder personally liable for the debts of the enterprise. This process involves proving that the shareholder ignored the boundary between private wealth and corporate capital, leading to the exhaustion of company resources at the expense of external creditors.