A UP associate law dean said courts may disregard a corporation’s separate legal personality and hold its individual owners accountable when the company is used to commit fraud, evade legal obligations or conceal assets.
This was according to Atty. Paolo Tamase, associate dean of the University of the Philippines (UP) Diliman College of Law, in an interview on Dobol B TV on Tuesday morning.
Tamase said the doctrine of piercing the corporate veil could become relevant in the impeachment proceedings involving allegations that corporate entities were used to channel or conceal income linked to Vice President Sara Duterte.
Under the doctrine, a corporation’s assets and transactions may, in appropriate circumstances, be attributed to an individual shareholder if evidence establishes that the company was used as a mere instrument or alter ego of that person.
“Generally, the corporation has a separate personality,” Tamase said in an interview, explaining that the principle protects legitimate businesses by separating corporate assets and obligations from the personal wealth of their shareholders.
He said the law does not allow individuals to use that separation as a shield for fraud or other illegal activities.
Tamase explained that the doctrine could apply if prosecutors establish that a corporation was used merely as a cover for unlawful transactions rather than operated as a genuinely separate business entity.
In the context of the impeachment proceedings, he said the prosecution appeared to be invoking the doctrine to attribute wealth earned by GenCorp and Metro City Chao directly to Duterte, rather than treating the funds as belonging exclusively to the corporations.
The prosecution would have to establish the factual and legal basis for disregarding the companies’ separate personalities, he said.
Among the circumstances courts may examine are the commingling of corporate and personal funds, inadequate separation of assets, undercapitalization, fraud or evasion of legal obligations, and failure to observe corporate formalities.
Commingling, in particular, could indicate that a company’s finances were not genuinely kept separate from those of its individual owners.
A corporation ordinarily maintains its own bank accounts, assets and management arrangements, distinct from those of its shareholders. Evidence that these distinctions were disregarded could support an argument that the company was being used as an extension of an individual, Tamase said.
He stressed, however, that the doctrine is an exception to the general rule recognizing a corporation as a separate legal entity.
The mere fact that an individual owns or controls a corporation does not automatically make that person personally liable for the company’s obligations or establish that its assets belong to the shareholder.
The prosecution must present evidence supporting its claim that the corporate structure was abused, while the defense may challenge whether the circumstances justify piercing the corporate veil.
Tamase also discussed the role of expert witnesses in court proceedings, saying their testimony is appropriate when a case involves matters requiring specialized knowledge beyond the ordinary understanding of the judge or other fact-finders.
Under the rules on evidence, an expert may be called to offer an opinion based on specialized knowledge, skills, education, training or experience.
Unlike an ordinary witness, who generally testifies about facts personally perceived, an expert witness provides an opinion intended to help the court understand technical or specialized matters.
Tamase said an expert’s credibility depends largely on demonstrating the qualifications necessary to provide a reliable opinion and maintaining objectivity.
Although a party typically calls an expert whose opinion supports its position, the expert must remain prepared to give an independent assessment, including when questioned about findings or conclusions that do not favor the party that engaged the expert.
A demonstrated bias could weaken an expert’s credibility and reduce the weight the court gives the testimony, he said.
The opposing party may question the expert’s qualifications, methods, conclusions and impartiality during cross-examination.
Tamase cited psychological incapacity cases involving the dissolution of marriages as an example of proceedings in which expert testimony may be used to explain specialized matters.
He said the impeachment proceedings would provide both sides with an opportunity to explain their respective positions and allow senators acting as judges to question the parties and examine the evidence.
The ultimate question in applying the corporate veil doctrine, he said, is whether the evidence shows that a corporation was genuinely operating as a separate legal entity or was being used to conceal an individual’s activities or evade the law.