Topic: Discuss whether the creditors of an insolvent subsidiary company can enforce their claims against the other members of a company group.
1. The liability of members of a company group to the creditors of an insolvent subsidiary company
(OR whether the law provides adequate protection to creditors and shareholders of insolvent companies. )
A group of companies refers to the relationship between a parent or holding company and its subsidiaries. A group of companies has a distinct legal personality, but every one of the subsidiary companies also has a separate legal personality.
Upon the insolvency and consequent liquidation of a subsidiary company, the creditors of the company ...view middle of the document...
If the members of the group of companies are considered to have separate legal personalities, they creditors cannot hold other companies liable if their claims cannot be satisfied.
Authority for the two opposing views are equally strong, and as such a thorough exposition of the two viewpoints is required to determine which viewpoint will ultimately triumph.
-When can the corporate veil be lifted: Express agency agreement, ie contract between parent and subsidiary companies. However, courts are reluctant to apply this principle to the relationship between parent and subsidiary companies because it enables them to take advantage of the limited liability principle. But, can agency agreement be implied if subsidiary company is acting within the scope of authority given to it by the parent company?
-The development of piercing of the corporate veil in South African law: Development form the strict test in Botha v Van Niekerk, to the more flexible test that the courts apply today.
-The use of fraud or improper conduct. (Cape Pacific v Lubner).
UK view: Courts are not always willing to lift the corporate veil to limit shareholder (or parent company) liability
US view: Considered a normal part of their legal system.
3. Literature review
4. Proposed research methodology
The legal principles underlying company law and the separate juristic personality of companies will be analysed in order to determine whether the corporate veil between members of a group of companies can be held liable for the debts of insolvent subsidiary companies.
This analysis will be based on the various positions that different legal systems around the world approach this matter of piercing the corporate veil, with regard to the development of the respective approaches and the current respective approaches to this matter.
A comparative analysis of the concept of the disregarding of juristic personality will not be attempted, however the development of the principles underpinning this will be discussed briefly to determine whether shareholder and creditor protection has progressed and how the courts and the...