Reverse Piercing of Corporate Veil?

Attorneys are well aware of the basic concept of “piercing the corporate veil”.   A corporation has a debt with a creditor.  The creditor wants to sue directly the shareholder by piercing the corporate veil so that the shareholder does not have the protection from liability that the corporate status normally provides.  There is a large body of law on this issue as to when a creditor can pierce a corporate veil to prevent the improper or fraudulent use of the corporation to avoid payment to the creditor.

In a recent Florida bankruptcy case a debtor attempted what to me was a novel concept, a reverse piercing of the corporate veil.  In re Checiek, 2013 Bankr. Lexis 2345, (Bankr.  M.D.  FL.  June 13, 2013).  The individual debtor filed bankruptcy.  He was a shareholder in a corporation that had assets, in particular, a truck with equity.  The debtor argued that corporate formalities should be ignored and that he should be able to use specific categories of personal property exemptions for individuals to property titled in the corporate name.  The bankruptcy court held that the debtor could not reverse the corporate veil.  The court did note, however, that under Florida law, “reverse veil piercing”  would only be permitted under extraordinary circumstances.

Note the Chezciek case involved the federal exemptions because the debtors were not eligible to use the Florida exemptions in the bankruptcy court.  They had moved to Florida within 2 years of filing the bankruptcy.  There are more numerous categories and greater amounts available under federal exemptions then Florida exemptions which emboldened the debtor’s attorney to attempt to be successful on the reverse piercing argument.

 



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