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subsidiary and may continue to prosper to the joy of shareholders. 90 This is despite
the fact all subsidiaries within the group are controlled either directly or indirectly by
shareholders of the parent company. The strict application of the law in this situation
may lead to injustice and may not give any sensible application to commercial life
which then demands either basic change to the law or the practice. 91
There is one aspect in which groups of companies are acknowledged as one entity; in
relation to the preparation of group accounts. 92 The requirement to disclose accounts
fair and true view should be sufficient to protect creditors because they can assess
creditworthiness of a company based on the information. 93 If creditors suffer loss as
a result of reliance on the information, then action should be taken under the existing
law or against auditors for breach of duties. 94 However, as long as creditors only
have claims against a particular company within a group, the law on disclosure is
largely irrelevant. 95 The separateness of these companies is acknowledged even in
90 Lord Templeman in Re Southard & Co Ltd[1979] 1 W.L.R 1198 at 1208 summed up the situation
as; “English company law possesses some curious features, which may generate curious results. A
parent company may spawn a number of subsidiary companies; all controlled directly or indirectly
by the shareholders of the parent company. If one of the subsidiary companies… turns out to be the
runt of the litter and declines into insolvency to the dismay of its creditors, the parent company and
other subsidiaries companies may prosper to the joy of the shareholders without any liability for the
debts of the insolvent companies.”
91 Robert Baxt “The need to review rule in Salomon‟s case as it applies to groups of companies”
(1991) 9 C& SLJ 185 at 186-187; see also Robert P Austin “Problems for Directors Within
Corporate Groups” in Michael Gillooly (Ed.), Law Relating to Corporate Groups at Ch 6.
92 Section 399 of the UK Companies Act 2006; section 211 (2) of the New Zealand Companies Act
1993; sections 302(2)(b) and 306 of the Australian Corporations Act 2001; section 169 of the
Malaysian Companies Act 1965.
93 Gower above n4 at ch 17; See also Saul Fridman, “Removal of the Corporate Veil” (1991) 19
ABLR 211 at 213-214 .
94 Fridman above n93 at 213-214 .
95 Gower above n4 at ch 17.
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