Company groups Flashcards
Advantages of group structure
Reduce risk of failure of one affecting others
Isolate businesses to focus on and develop brands
Clear division of management responsibilities
Separate profit centre for each manager to receive initiatives
Flexibility for acquisitions and disposal of businesses
Tax benefits of setting off losses in one company against profits of other to reduce taxable profits
A company is a subsidiary of a holding company is the holding company has control of….
Vote control test
Director control test
Contract control test
Vote control test
Holding company has majority of voting rights/ shares at general meetings of subsidiary
Director control test
Holding company is a member of subsidiary and has right to appoint or remove a majority of directors
Contract control test
Holding company is a member of subsidiary and controls alone or with others a majority of voting rights on shares at general meeting of subsidiary
Leg definition what a group consists of
S1159CA - a group can consist of parent (holding) company and subsidiary
Leg regarding accounts of company groups
S339 CA - certain parent companies must form accounts for its groups as if it was one company to form a true image of the state of the company
Prevent use of subsidiary to avoid debt
What was the agency argument is Saloman
Unsuccessful argument
Tried to argue that subsidiaries are agents making contracts for principal.
Agency relationship is acting on behalf of someone. Subsidiary does not act on behalf of holding company
What was the single economic unit argument in Salomon
Unsuccessful argument
Argued that holding and subsidiary were one economic unit
Economic unit does not mean that SLP can be ignored. They are still separate legal entities
What did Adam’s v Cape decide
Single economic unit is not a reason to Pierce the corporate veil
What was the Belhaven Case
Couldn’t sue subsidiary instead of holding where holding had no money left as reorganisation of group was legit response to financial crisis and not an attempt to avoid obligations
