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to Australia and New Zealand which provide a statutory duty for the parent
company to be liable for the debts of its subsidiary. It is submitted that as in
situations of lifting of the corporate veil, the question whether a parent company
can be regarded as a shadow director would depend on the degree of control it
exercised over the subsidiary.
Likewise, in respect of a finance company, whether it can be regarded as a
shadow director would depend on the degree of control it exercises over the
company and whether the actual directors of the company did not exercise any
real authority or were free to decide the directions of its affairs. The matter was
raised in Re a company (No 005009 of 1987), ex parte Copp and another 126 and
the court refused to strike out the bank‟s application to the liquidator‟s claim that
it should be liable under section 214. The court refused to strike out the claim that
the bank was a shadow director because the recommendations made in the report
for the company to follow were not unfounded. In reaching to his conclusion,
Knox J relied on the available facts before him and ignored the possibility of
further evidence at the trial. 127
10.3.2.2 Insolvent liquidation
Section 214 can be invoked only when the company has gone into insolvent
liquidation, which means that liquidation on any other grounds is excluded. The
test to determine insolvency for the purpose of insolvent trading is the balance
sheet test, which focuses on the net assets of the company. 128
126 [1989] BCLC 13.
127 See also Oditah above n52 at 213.
128 Section 214(6) of the UK Insolvency Act 1986-“ For the purposes of this section a company
goes into insolvent liquidation if it goes into liquidation at a time when its assets are insufficient
for the payment of its debts and other liabilities and the expenses of the winding up.” See also
Keay above n2 at 86.
257