In as much as the Government has been in the consistent process of encouraging business operations in the nation, it also has the objective to create more transparent and systematic mechanism ensuring time bound manner and for maximization of the value assets. One of the major challenges faced by the modern commercial sector is the reposition of faith of the creditors who put their hard-earned investments at the fate of the success of the business transactions undertaken.
Resolution Procedure
The UK government announced on 26 August 2018 that it will legislate to change aspects of the UK restructuring and insolvency systems. The reforms are a response to recent high-profile domestic corporate insolvencies and the various issues highlighted in those matters.
July 2018
2018 Summer review M&A legal and market developments
In this issue...
Contractual provisions.............................................................1 Company law...........................................................................4
Listed companies....................................................................7 Good faith................................................................................9
Authors: Philip Broke, Veronica Carson
It has been long-established by the classic fundamental principles of corporate law that companies are separate and distinct persons from their shareholders, directors and officers. From this flows the general principle that it is the company, and the company alone, that can be liable for its obligations. This holds even in cases of companies linked by direct and indirect share participation and which are, in their entirety, dominated by a parent company, often a mere holding company without any business activity. These are referred to in corporate jargon as “corporate groups”.
Use the Lexology Navigator tool to compare the answers in this article with those from other jurisdictions.
Director and parent company liability
Liability
Under what circumstances can a director or parent company be held liable for a company’s insolvency?
The Court of Appeal has dismissed an appeal by Steel & Tube Holdings Limited (STH) against the legal basis and quantum of a $750,000 judgment based on a “de facto amalgamation” with its subsidiary company.
The ruling reinforces the message from the High Court that directors must be careful to maintain a subsidiary’s independence if they are to protect the parent against liability for the subsidiary’s debts.
The context
A client who is building a large mixed use development called me yesterday with a dilemma. He had received a letter from a local equipment supplier, who was on the verge of bankruptcy because the sub-contractor who had engaged him had gone into administration after the hire period had come to an end. He was pleading with my client to help him recover some £20,000 of hire fees still owed to him.
Directors beware – unless you are careful to maintain a subsidiary’s independence, the parent company may be liable for the debts of its subsidiary.
That is the effect of a recent High Court decision invoking a rarely used provision in the Companies Act.
We analyse the judgment and draw some practical advice from it.
Section 271
Section 271(1)(a) of the Companies Act 1993 (the Act) has been used only rarely and is unique to New Zealand law, although Ireland has a similar provision.
The court provides guidance on liability if a subsidiary goes bankrupt because of the misconduct and careless management of its parent company.
Over the last few years, employees have increasingly sought to hold the parent companies of their employers liable for the subsidiaries’ actions by trying to demonstrate that the parent entity is the employee’s co-employer, i.e., that the employee has two employers: the company that hired him or her and its parent company.
To demonstrate this co-employment situation, the employee must prove either that