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The Defence of the Corporate Veil - Parent Companies Beware!

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Introduction

��ࡱ�>�� /1����.�������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������5@ ��0�bjbj�2�2 (*�X�X��������������������8� ���v\^^^^^^$SR�������***��\*\**<��< ���]!���<\�0�<� � <������� �< *��*The Defence of the Corporate Veil - Parent Companies Beware! Much interest has recently been shown in the potential consequences of the judgment given in Stocznia Gdanska SA -v- Latvian Shipping Co and others, which was substantially upheld by the Court of Appeal on 21 June 2002. Although the case related to Shipbuilding Contracts, the result has reinforced the traditional view that the Courts will not countenance any further erosion of the fundamental principle of English Company Law that a company is to be regarded as a legal entity with a separate legal personality, distinct from that of its members. However, the case has highlighted potential alternative sources of liability for parent companies establishing wholly owned single-purpose subsidiaries - in many industry sectors, including shipping, property and big-ticket asset finance. The basic principles The principle of separate corporate personality has been established for over a century. In the leading case of Salomon -v- Salomon & Co. ...read more.

Middle

The mere fact that one company is the subsidiary of another (even a wholly-owned subsidiary) is not of itself sufficient to make that subsidiary an agent of its holding company. However, it should be borne in mind that:- - for the purposes of liability to U.K. taxation, the U.K. Tax Authorities will in certain circumstances seek to impose liability on a parent company on the basis that it is carrying on business in the U.K. through a subsidiary acting as its agent or constituting a �permanent establishment�1 within the meaning of the relevant Double Tax Treaty; - directors of a company can be held personally liable in certain circumstances if it can be established that there has been �fraudulent trading� 1 and/or �wrongful trading� 1 under Sections 213 and/or 214, Insolvency Act 1986; - a parent company can in certain circumstances be categorised as a �shadow director� 1 of its subsidiary if the board of directors of the subsidiary is not free, and seen to be free, to come to its own decisions as to the conduct of the subsidiary�s affairs. ...read more.

Conclusion

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