December 24, 2015 Magazine Georgian Journal, 24-30 December 2015 № 51(414). Article by Tamara Tkeshelashvili and Mariam Antia, lawyers at MKD.
The Supreme Court of Georgia issued a landmark decision in 2015 (case #as-l307-1245- 2014, case Ms-1158-1104-2014) defining the scope of the personal liability of the shareholders and the directors of a company. The decision is important since it discusses the doctrine of piercing the corporate veil and interprets one of the core fiduciary duties - the duty of care.
PIERCING THE CORPORATE VEIL
The Supreme Court ruled that the grounds for liability of the shareholders and the direc¬tors are inherently different, given their dis¬tinct status. According to the Supreme Court, the shareholders may be held personally liable (piercing the corporate veil), based on article 3.6 of the Law of Georgia on Entrepreneurs, ifthey misuse corporate forms of limiting lia¬bility. The Supreme Court broadly interpreted said clause, stating that personal liability could rise not only from the misuse of the corporate form, but also as a result of abusing limited liability. As the Supreme Court states, such abuse of corporate power is in place when the shareholder orchestrates activities aimed at tax evasion and the company is used by the shareholder as a tool for originating un-declared income. The burden ofproof in such a case is on the plaintiff.