4.2.3.4 Liability of third parties

Other than outside auditors, the third parties who are most likely to face liability for a company's debts are creditors themselves, albeit inside creditors who are most often controlling shareholders as well. In general, 'outside' creditors have two remedies against the 'inside' creditors of an insolvent company. First, outsiders can sue insiders such as banks who intervene in the management of an insolvent company as de facto directors or partners. The UK provides by statute that any person that knowingly carries on any company business with the intent to defraud creditors may be held liable if the company is liquidated.137 Similarly, European banks fear becoming de facto directors if they enter workout arrangements with failing companies,138 while there is no

indicates that UK courts often pierce the corporate veil. See C. Mitchell, Lifting the Corporate Veil in the English Courts: An Empirical Study, 3 COMPANY, FINANCIAL AND INSOLVENCY LAW REVIEW 15 (1999).

133 In Japan, many published cases deal with veil piercing, the most litigated issue in corporate law

after director liability; see, e.g., Supreme Court Judgment on February 27, 1969, 23 Minshu 511.

France and Germany tend to add public policy considerations in veil piercing analyses, but this has

marginal practical implications: see Cozian et al., supra note 28, N°226 and 433; Kiibler, supra note

48, $23 I 2.

134 For the UK, see Davies, supra note 15, 102-7 (mentioning that parents may excepaonally be

held liable as shadow directors); Ferran, supra note 41, 31-5.

135 U.S. courts sometimes use specific tests for groups of companies, such as the lack of clear

operational delineation ('substantive consolidation'). See Hamilton, supra note 68,148-9. Similarly, a

French group of companies that does not carefully segregate the assets of members of the group risks

being considered a single entity. See Cozian et al., supra note 28, N°1972. Although creditors of

German group of companies are protected by indemnification mechanisms (see supra 4.2.2.2), courts

are as likely to pierce the veil as other continental European Courts when assets are not segregated or

when parent intervention threatens the survival of the subsidiary. BGHZ 122,123 [TBS]; BGHZ 149,

10 [Bremer Vulkan]. For similar Swiss case law, see Wibru Holdmg, AS 120 II 331 {Federal Tribunal

1994).

136 In the U.S., Thompson [supra note 132, 1056) Ends that courts pierce the veil in 43.13% of

decided cases to reach the assets of individual shareholders, and in 37.21% of decided cases to reach

the assets of corporate shareholders. For Switzerland, see Peter Loser, Konkretisterung der Vertrauen-

sbaftung, 17 RECHT 73 (1999).

137 $213 insolvency Act.

138 pnr France, see Art. L. 313-12 Code monetaire et financier, which limits the rights of banks to

end a credit relation; for fraudulent trading under UK law, see Davies, supra note 114, 197-8; for

Switzerland, Gerard Hertig, Lenders as a Force in Corporate Governance. Criteria and Practical

Examples for Switzerland, in Klaus Hopt et al. (eds.), CORPORATE GOVERNANCE: THE STATE OF THE

shortage of doctrines to impose liability upon lenders that deal with insolvent U.S. firms.139

Second, creditors who enter into transactions that divert the assets of an insolvent company away from other creditors may be forced to return the consideration they receive to the estate of the debtor under the doctrines of actio pauliana in continental Europe and fraudulent conveyance in the Anglo-Saxon jurisdictions and Japan.140 These doctrines that reverse transactions carried out between corporate debtors and favored creditors—especially financial intermediaries—shortly before the insolvency of the former are often neglected by comparative studies of corporate law.141 But although these doctrines arise from general debtor-creditor law rather than corporate taw, we might expect them to have particular utility in protecting corporate creditors.