Bankruptcy Veil-Piercing: Bypassing Broken Nodes?

Abstract:     
The paper examines explanations of the relative frequency of contract piercing litigation. Tort piercing may be rare because it is displaced by product and vicarious liability. Alternatively, contract piercing may be frequent because failing subsidiaries generate piercing litigation. Examining the in¬solvency of subsidiaries by forming a bankruptcy sample, three phenomena appear. (i) The majority of tort claims argue fiduciary breach, which is very rare outside of bankruptcy. (ii) Intentional torts are exceedingly rare but piercing reaches 100%. (iii) Contract piercing is dominated by attempts to pierce others’ veils rather than the debtors.’ The latter phenomenon may correspond to reckoning around the removed nexus of contracting, bypassing the broken node that was the failed subsidiary.

Number of Pages in PDF File: 21

Keywords: piercing, veil piercing, piercing the corporate veil, bankruptcy, substantive consolidation

JEL Classification: K19, K22, C12

working papers series