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and reliable third party‟s opinion, that the company was solvent and would remain as
such at the time the debt was incurred. 165
The liability on the holding company is imposed only in respect of the knowledge of
its directors who are actively involved in its management. Thus, the holding
company will escape liability if the directors who have knowledge of the insolvency
of the subsidiary are those who are not actively involved in the management of the
company due to illness or any other good reasons. 166 Finally, if the holding company
has proven that it has taken all reasonable steps to prevent the subsidiary from
incurring debts, then it will not be liable for the debts of its subsidiary. 167
5.2.3.3.3 Common Law Approach
In the absence of statutory provisions expressly dealing with the liability of holding
company/directors in group of companies, reliance on the courts to provide
guidelines continues. Courts grapple with the reality of the issue while at the same
time trying to uphold the separate legal entity principle. 168 The courts have been
inconsistent as to the circumstances when veil will be lifted, though fraud and
business reality of the groups seem to be the most used. In D.H.N. Food
Distributions Ltd v Tower Hamlets L.B.C, 169 the Court of Appeal looked at the
structures and the business reality of the group and decided they should be treated as
one. 170
165 Section 588X(3) of the Australian Corporations Act 2001.
166 Section 588X(4) of the Australian Corporations Act 2001.
167 Section 588X(5) of the Australian Corporations Act 2001.
168 Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd
[1983] 2 All E.R 563.
169 [1976] 1 W.L.R. 852.
170 Lord Denning M.R. stated at 860 “This group is virtually the same as a partnership in which all the
three companies are partners. They should not be treated separately so as to be defeated on a
technical point…They should not be deprived of the compensation which should justly be
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