Limited liability regime in corporate groups. Towards an enforcement of the Enterprise Liability doctrine in Ecuadorian Law

Abstract

Corporate group legislation was, for a long time, an aspect of scarce development under Ecuadorian law. It was not until the latest reform to the Company Law (Ley de Compañías)  that Ecuador stopped perceiving corporate groups as a structure based on share ownership and began to analyze them based on assumptions of control, subordination, and possible effects that such structures may have on relations with third-party creditors. Since this is a new regulation in the Ecuadorian legislative scenario, this paper analyzes the nature of corporate groups, with special emphasis on the arguments that support or reject the need for such structures to benefit from the limited liability principle. Once the advantages and obstacles on the application of limited liability in these structures have been analyzed, it will be argued whether it is necessary to consider the incorporation of a liability regime focused on corporate groups. It is suggested to incorporate a regime known as «enterprise liability doctrine» to avoid an abuse of limited liability and to pursue the group as a single structure, instead of distinguishing between shareholders and the company as an independent vehicle. Finally, this paper analyzes Ecuadorian legislation focused on how this liability regime for corporate groups has been developed, emphasizing the need for it to enjoy an independent treatment from the veil piercing doctrine. This, given that its application to corporate groups is insufficient and does not guarantee full liability of the parent company, nor an effective compensation for the affected creditors.