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ecause the creditors of the subsidiary could not expect to receive more than they
would have done, had the directors complied with their statutory duties. 158
In Re Dalhoff and King Limited (in liq), 159 the court considered the existence of
inter-company debts which were not properly documented. If the pooling order was
not granted, there would need to be legal actions to determine the validity and
amount of those debts and this could deplete the available funds. Further, the court
noted in insolvency, creditors‟ interests will prevail over shareholders and the
creditors will be better off if the order is granted. The court also acknowledged from
the facts that management had treated these companies as an entity and to refuse the
order would belatedly recognising the principle, which the companies had never
operated.
The availability of these orders would assist the management to set the standard of
care required from them. This is because the management of the solvent company
must also be aware when the court will find the situation just and equitable to make a
contribution or pooling order. 160 This also imposes an additional duty on directors to
be vigilant not only on the affairs of their company but also other companies within
the group.
Baragwanath J in Mountfort also explained the relationship between section 131(2)
and section 272 of the Act. The judge was of the view that the application of section
131(2) is narrow and provides little defence to a director. Section 131(2) allows a
director of a wholly-owned subsidiary to act in the interests of parent, even if it is not
in the subsidiary‟s best interests, provided the constitutions of the subsidiary contain
provisions to that effect. The section, however, is ancillary to the fundamental
158 Ibid.
159 [1991] 2 NZLR 296 at 306-309.
160 Farrar Corporate Governance above n79 at 280.
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