V. Piercing the Corporate Veil

• Author: Julien D. Payne - Marilyn A. Payne
• Pages: 476-477

Page 476

It is a long-established rule of law that a corporation is a legal entity distinct from its shareholders. However, the distinction between a company and its "controlling mind" is not absolute and, in appropriate circumstances, a court may pierce the corporate veil for the purpose of enforcing third party rights. In the field of corporate and commercial law, the judicial willingness to look behind a corporation is narrowly circumscribed. There must be suffering caused to a third party that cannot be otherwise remedied. In general, the following circumstances must be present in those fields: (1) the individual must exercise complete control over the finances, policies and business practices of the company; (2) that control must have been used by the individual to wrongly deprive a third party of his or her rights; and (3) the misconduct must be the reason for the third party’s injury or loss. In the area of family law, a somewhat less rigorous approach has been taken by the courts where an individual seeks to shield herself against the legitimate enforcement of support rights and obligations. It is noteworthy that a piercing of the corporate veil is expressly mandated by section 18 of the federal and provincial child support guidelines for the purpose of imputing income to a spouse or parent, although this may simply be the codification of a common practice of the courts across Canada in claims for both spousal and child support. There are important public policy reasons for courts to prevent support obligors from hiding behind the facade of a private company. The nonpayment of support thrusts family dependants on social assistance and contributes to present levels of child poverty in Canada. If statutory support rights and obligations are not to be frustrated, a court must be free to pierce the corporate veil in appropriate circumstances in order to ensure their enforcement.¹⁷⁷

For the purpose of enforcing child support, a court may pierce the corporate veil where a defaulter commingles commercial and business expenses, but the piercing of the corporate veil to assist in the resolution of child support issues does not destroy the defaulter’s ability to rely on the corporate vehicle for other purposes, including tax and protection from personal liability connected to business operations.¹⁷⁸The payor cannot shelter his assets and income behind a corporation and thereby seek to justify a reduction in the amount of support that should...