Piercing the Corporate Veil in China: Reaching a Parent or Shareholders for a Subsidiary's Debts

Introduction

The whole point of a subsidiary is limited liability: the parent's exposure stops at its equity, and the creditor of an insolvent subsidiary is supposed to recover nothing more than the subsidiary owns. The Chinese doctrine of "disregarding the company's independent personality" (公司人格否认) — the veil-piercing rule — is the statutory exit from that rule. The revised Company Law of the People's Republic of China, adopted on 29 December 2023 and effective 1 July 2024, codifies the doctrine in Article 23, and it gives a creditor three distinct routes rather than one.

The Statutory Basis: Company Law Article 23

Article 23 of the revised Company Law is the modern codification of a doctrine that previously lived partly in the statute and partly in case law. It provides, in substance, three routes to reach beyond the subsidiary:

• Vertical piercing: where a shareholder abuses the company's independent legal personality and the shareholder's limited liability to evade debts and seriously prejudice the interests of creditors, the shareholder bears joint and several liability for the company's debts.
• Horizontal piercing: the same principle extends to related companies — where a shareholder uses multiple companies it controls to blur their independence, each company can be held jointly and severally liable for the others' debts. This is the provision a foreign creditor reaches for when a group shifts assets among sister companies.
• One-person-company reversal of proof: for a company with a single shareholder, the burden shifts — the shareholder must prove that the company's property is independent of the shareholder's own property, failing which the shareholder bears joint and several liability.

What "Abuse" Looks Like in the Case Law

The statutory language is general; the case law supplies the facts that make it concrete. Chinese courts have repeatedly found abuse where the evidence shows:

• Commingling of funds — the parent and subsidiary share bank accounts, or the subsidiary's receipts are swept to the parent without a genuine basis.
• Blurred identity — the same personnel, same registered address, same official seal, same website and the same business, so that the two companies are functionally one.
• No independent accounting — the subsidiary has no books of its own, or its books are maintained by the parent to the parent's convenience.
• Asset stripping — the subsidiary's valuable assets are transferred to the parent or to a sister company for no or inadequate consideration, leaving the shell to face the creditor.

How a Foreign Creditor Actually Reaches the Parent

A veil-piercing claim is won or lost in the evidence, and the evidence must be gathered before the subsidiary has finished disappearing. The practical sequence is: sue the subsidiary and join the parent or sister company as a co-defendant on an Article 23 theory; apply for property preservation over the parent's assets at the same time, because a piercing claim is only worth as much as the assets it can freeze; and prove the commingling, blurring or one-person-company facts through bank records, registry filings, seals and personnel records. The forum matters too — see Enforcing Foreign Arbitral Awards in China: A Practical Guide for the enforcement side, and China Contract Disputes: Breach, Termination and Damages for the underlying claim.

Practical Points for a Creditor

• Map the group before you sue. Identify the parent, the sister companies and where the assets actually sit.
• Use the one-person-company route where it fits. If the debtor is a single-shareholder company, the burden of proof is yours to exploit, not yours to carry.
• Freeze early. A piercing claim without property preservation is a moral victory; apply for preservation when you file.
• Gather the four proofs. Bank records, registry and seal evidence, personnel overlap and the absence of independent books are the case.
• Do not overreach. Piercing remains the exception, not the rule; a claim based only on the parent's control, without abuse, will fail.

How Tianni Law Firm Can Help

Tianni Law Firm (江苏天倪律师事务所), based in Nanjing, Jiangsu, acts for foreign creditors seeking to reach a parent or shareholders for a Chinese subsidiary's debts. Our work includes pre-suit group mapping, evidence collection on commingling and blurred identity, property-preservation applications, and litigation under Article 23 of the revised Company Law. This article is general information, not legal advice; the veil-piercing case law continues to develop under the 2023 Company Law, so confirm the current judicial practice before bringing a claim.