An important issue to consider is whether to treat a

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An important issue to consider is whether to treat a group as one legal entity ‘enterprise approach’ or as a group of separate legal entities There have been different responses to this issue at the common law English position: The first decision to adopt the ‘ enterprise approach’ was in {DHN Food Distributors} o Here the English Court of Appeal said that companies of the same group should be treated as one and ‘ not treated separately so as to be defeated on a technical point’ o The court emphasised that it was dealing with a 100% owned subsidiary that was effectively controlled by the holding company {Rogers AJA in Briggs v James Hardie} made the comment that ‘this approach (above) would solve many problems which are increasingly troubling the courts’ o However Rogers AJA also has some doubts as he acknowledges that Salomon was ‘laid down at a time when economic circumstances were vastly different…” Australian position: each company in a group will be treated as a separate legal entity with its own rights and liabilities {Walker v Wimbourne; Industrial Equity v Blackburn} This separate legal entity doctrine means that directors of one company in a group owe their duty primarily to that company rather than to the group as a whole {Walker v Wimbourne} o fundamental principle that each of the companies was a separate and independent legal entity, and that it was the duty of the directors of Asiatic to consult its interests and its interests alone in deciding whether payments should be made to other companies” {Walker} Also profits earned by a subsidiary could not be treated as profits earned by a holding company {Industrial Equity v Blackburn} Therefore when trying to find a group responsible, find a similar case – otherwise probably assume that you can’t! (or use another general law method ie. Agency or fraud which are both unlikely too) C. Piercing the Corporate Veil under Corporations Act General Rule: in the event of an insolvent company, the liquidator will be ale to pierce the corporate veil and recover the shortfall from the Holding Company {s 588W Corporations Act} Duty to Prevent Insolvent Trading – Holding Company: {s 588V Corporations Act} allows the piercing of the corporate veil to claim against a holding company We will discuss this later on when we come to directors’ duties Hadi Mazloum [email protected]
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