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principle of limited liability be rigidly maintained. 85 In the modern corporate world,
a large single entity public limited company is almost non-existent; companies
usually operate their businesses through conglomerates with different subsidiaries in
different fields and locations. 86 Thus, the principle of separate legal entity no longer
represents the commercial reality of the corporate structure.
The governing role in the organisation may come from the shareholders who have
the power to vote at the general meetings or through banks or financial institutions
which have sufficient leverage to influence a board‟s decisions. 87 This is often done
through the creation of charges over the company‟s assets in favour of the bank. In
addition, governance may also take the form of economic dependence where one
dominant party is able to exert compliance from the other. 88
The current legal standing which separates companies within a group does not reflect
the commercial reality and when one of the companies collapses, creditors are at a
disadvantageous position because, in most cases, they will find the company they
concluded the contract with does not possess any valuable assets. 89 The parent
company and other subsidiaries do not owe any liability to creditors of the insolvent
85 Roger AJA in Briggs v James Hardie & Co Pty Ltd and Others (1989) 16 NSWLR 549 at 567-568.
86 Tom Haddon, "The Regulation of Corporate Groups in Australia" (1992) 15 UNSW LJ 61; Phillip
Blumberg, The Multinational Challenge to Corporation Law: The Search for a New Corporate
Personality ( Oxford University Press, New York, 1993)at ch 3.
87 David Millman” Priority Rights on Corporate Insolvency” in Clarke A. (Ed.) Current Issues in
Insolvency Law (Stevens and Sons, London, 1991) 57.
88 Hugh Collins “Ascription of Legal Responsibility to Groups in Complex Patterns of Economic
Integration” (1990) 53 MLR 731 at 734.
89 See judgment by Justice Rogers in Qintex Australia Finance Ltd v Schroders Australia Ltd (1990) 3
ACSR 267 “It may be desirable for Parliament to consider whether this distinction between the law
and the commercial practice should be maintained. This is especially the case today when the many
collapses of conglomerates occasion many disputes…creditors of failed companies encounter
difficulty when they have to select from among the moving targets the company with which they
consider they concluded a contract. The result has been unproductive expenditure on legal costs, a
reduction in the amount available to creditors, a windfall for some, and an unfair loss to others.
Fairness or equity seems to have very little role to play.”
90