BS LAW

Topics: Subsidiary, Parent company, Corporation Pages: 10 (1769 words) Published: April 16, 2015
NATIONAL ECONOMIC UNIVERSITY
BUSINESS SCHOOL

Module title: Business Law
Title of assessment: Michael Ltd
Course: E-MBA 13B
Submission date: Wednesday, 8th April 2015
Time: no later than 18:00PM
Submission location:
Member in group: 1. Nguyễn Thanh MaiEMBA13102
2. Nguyễn Thị NgọcEMBA13112
3. Nguyễn Văn Huyên EMBA13077
Word count: 1,313 words.

TABLE OF CONTENTS

CONTENTS3
I.In case of material delivered to Refressment Ltd and orders received by Refressment Ltd were not passed on to Moonflowers Ltd3 II.There were the passed from Refressment Ltd on to Moonflowers.5 CONCLUSION7

REFERENCES8

CONTENTS
In this case, before giving advice to Michael Ltd, it’s necessary to clear the relationship between Strongman Plc., Refressment Ltd and Moonflowers Ltd. With each circumstance case, there is one advice to Michael Ltd. First, Strongman Plc. is the parent company in a group of companies operating in the production and distribution of water spot equipment. Moonflowers Ltd is a wholly – owned subsidiary of Strongman Plc., and was only recent incorporated. Therefore, relationship between Strongman Plc. and Moonflowers Ltd is parent – subsidiary company. According to Common Law, “the parent company has control over the subsidiary” (slide company under common law – lecture 2) but it’s “separate entities and independent of one another”. However, under common law, a court may "pierce the corporate veil" of the parent if it finds an appearance of impropriety through questionable share transfers or other fraudulent means of avoiding the subsidiary's liabilities. Courts might also subordinate the parent's debts to outside creditors if the parent has engaged in unfair conduct, such as influencing new creditors to extend credit to the subsidiary while knowing the subsidiary's poor financial condition (Shaa Hudson, Demand Media, smallbusiness.chron.com). Before explaining Strongman and Moonflowers having responsible to pay the debts of Refressment or not, it’s important to identify the material delivered and orders received of Refressment Ltd passed or not passed on to Moonflowers Ltd. I. In case of material delivered to Refressment Ltd and orders received by Refressment Ltd were not passed on to Moonflowers Ltd 1. Responsibility of Moonflowers Ltd.

Obviously, there is no responsibility of Moonflowers Ltd to Refressment Ltd, because there is no contract between them. Thus, Michael Ltd cannot ask Moonflowers about the debts of Refressment Ltd, even though Refressment Ltd is one subsidiary of Strongman Plc. or not, because Refressment Ltd and Moonflowers Ltd is two independent companies. 2. Strongman Plc.

About Strongman Plc., because Strongman Plc. holds the majority of shares in Refressment Ltd, there are two types of business which can effect to relationship and decision as well as liabilities between Strongman Plc. and Refressment Ltd. a. Refressment Ltd is one subsidiary of Strongman Plc.

Actually, in most case, the debt of Refressment Ltd is not related to Strongman Plc. However, according to company contract under common law, Strongman Plc. “is liable to pay damages to each other party to the pre – incorporation contract” if Refressment Ltd is “registered but does not ratify the contract”. (invigorlaw.com) b. If Strongman is one general partner ( Limited partnership) or if Strongman is Corporation in Refressment Ltd Strongman Plc. is one shareholder of Refressment Ltd. However, the company was separate entity from its shareholders. Based on case “Salomon v A Salomon and Co Ltd [1897] AC 22, Strongman Plc has not liable with the debt of Refressment Ltd. Overall, with no passed trading from Refressment Ltd on to Moonflowers Ltd, Moonflowers Ltd has no responsible with the debt of Refressment Ltd, so Michael cannot obtain the payment from Moonflowers. Besides, Strongman Plc. in most case still have no liable with action of Refressment Ltd, but if Strongman Plc. had intervention on the...

References: 5. Distinction Between Subsidiary And Wholly Owned Subsidiary. Lawtecher.com. http://www.lawteacher.net/free-law-essays/business-law/distinction-between-subsidiary-and-wholly-owned-subsidiary-business-law-essay.php [Accessed on April 07, 2015
6
9. Douglas Kerr. Hiding Behind Subsidiaries: Holding Parents Liable. GULS. http://www.gulawreview.org/entries/commercial/hiding-behind-subsidiaries-holding-parents-liable. January 10, 2014.
10. Marlies Braun. UK: When Is A Parent Company Liable For The Actions Of Its Subsidiary?. Mondaq. http://www.mondaq.com/x/149348/Corporate+Company+Law/When+Is+A+Parent+Company+Liable+For+The+Actions+Of+Its+Subsidiary October 17, 2011.
11. Shaa Hudson, Demand Media. The Relationship Between a Company & Its Subsidiary. Chron. http://smallbusiness.chron.com/relationship-between-company-its-subsidiary-14696.html [Accessed on April 08, 2015]
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13. Companies Act 2006. Legislation.gov.uk, [Accessed on April 07, 2015]
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