Collapsing Corporate Structures: Resolving the Tension Between Form and Substance

Abstract

This article engages a fundamental question of corporate law: when is a corporate structure legitimate, and when should it be collapsed? Although this question arises in many contexts (such as substantive consolidation, piercing the corporate veil, and collapsing leveraged buyout transactions), it is becoming most urgent in the context of widespread but increasingly complex structured finance transactions, which often utilize multiple corporate entities as part of the overall structure. Judges and scholars have attempted to answer this question in isolated doctrinal contexts, but they have not seen the question as cutting across doctrines or attempted to formulate rules of general application, much less an overall theory from which to derive such rules. This failure leaves the law with unsettling ad hocery, which in turn creates uncertainty, inconsistency, and inefficiency on multiple levels. My article attempts to answer this question by synthesizing existing doctrine, applying economic and contract theory to the synthesis, and then testing the result against actual examples. The answer not only helps to explain and harmonize existing doctrine but also provides a conceptual framework for developing future judicial doctrine and legislative initiatives.