X

Legal Memorandum: Alter Ego or Corporate Veil Piercing Theories

Issue: Under Delaware law, under a reorganization, can a holding company be held liable for its subsidiaries’ debts under the theory of alter ego or other related veil-piercing theories?

Area of Law: Corporate & Securities
Keywords: An alter ego or corporate veil piercing theory; Subsidiaries' liability; Holding company
Jurisdiction: Delaware
Cited Cases: 239 A.2d 629
Cited Statutes: Delaware General Corporation Law § 251(g)
Date: 05/01/2009

Delaware General Corporation Law § 251(g) was adopted in 1995;*FN1 since enactment no reported Delaware case, state or federal, has discussed whether a holding company, which is part of a reorganization pursuant to that statute, is liable for its subsidiaries’ debts based on an alter ego or corporate veil piercing theory.  Indeed, only one case was located that references both § 251(g) and corporate veil-piercing theories in any context.  See Hollinger, Inc. v. Hollinger Int’l, Inc., 858 A.2d 342, 348, 372-75 & n.34 (Del. Ch. 2004).  However, in that case, the court did not impose liability on the holding company for its subsidiary’s liabilities; rather, it referred to corporate veil-piercing theories for other purposes and, in any event, determined that the matter before it “can be resolved without rendering any definitive pronouncement on this area of our law.”  Id. at 375.

Nothing suggests that when a plaintiff attempts to pierce the corporate veil of a subsidiary and impose the latter’s liability directly on the defendant parent, the fact that the parent is a holding company (whether or not reorganized under § 251(g)) requires the court to consider additional factors or apply different standards than those applied to corporate parents generally.  In fact, the authority that does exist suggests there is no heightened or different standard for applying corporate veil-piercing theories when Delaware holding companies are involved. 

For example, in a recent case, BASF Corp. v. POSM II Props. P’ship, No. CIV.A. 3608-VCS (Del. […]

Subscribe to Litigation Pathfinder

To get the full-text of this Legal Memorandum ... and more!

(Month-to-month and annual subscriptions available)