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the preparation of group accounts, because it does not substitute the requirement of
preparing accounts of the holding company itself. 96
The existence of an economic organisation has placed considerable stress on the
legal principle; on the one hand, the economic reality requires the law to recognise
these entities as one group, while the courts, on the other hand, are reluctant to depart
from the principle enunciated by Salomon v Salomon & Co Ltd 97 over a century ago.
The question now is how the law will reconcile this dilemma and to what extent the
separate legal entity rule must be adhered to.
5.2.3.2.1 Common Abuses in Groups of Companies 98
The structures of companies within the group make it possible for action prejudicial
to creditors to be committed. A subsidiary company, for instance, can be used to act
in accordance with the holding company's wishes even to its own detriment. 99 The
subservient nature of the subsidiary makes it possible for the holding company to
manipulate its assets through commingling, shuttling and draining the assets. 100 A
subsidiary can also be used to be as a „banker‟ to the holding company without any
reciprocal benefits. 101
96 Industrial Equity Ltd v Blackburn (1977) 17 ALR 575, per Mason J at 584 “ The Companies Act
doe not, in the case of holding companies, substitute the requirement for the group accounts for the
old requirements of accounts of the holding company itself. Group accounts are additional
requirement; the holding company is still obliged to lay before its shareholders in general meeting
its profit and loss account and balance sheet….”
97 (1897) AC 22.
98 For details see Andrew Muscat The Liability of Holding for the Debts of its Insolvent Subsidiaries
(Dartmouth, 1996).
99 Ibid, at 65-84.
100 Ibid.
101 Ibid.
92