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Another defect of the section is in relation to its application, which is limited to
subsidiary companies. The holding company can avoid liability simply by
manipulating its control over the company outside the definition of subsidiary as
provided under section 46 of the Corporations Act. 264
The problems manifest could have been avoided had the legislature adopted the
Law Commission‟s recommendations. The Law Commission suggested that a
company which is related to another company should be liable for all or part of
the amount admissible in winding up if the court is „satisfied that it just to do so.‟
In deciding what amounts to „just,‟ the three factors to be taken into
considerations by the courts are:
a) the extent to which the related company took part in the management of
the company;
b) the conduct of the related company towards the creditors of the company;
and
c) the extent to which circumstances that gave rise to the winding up of the
company are attributable to the actions of the related company.
The usage of the term „related company‟ has wider applications than subsidiary
company and hence, the holding company could not escape liability by
manipulating the technicalities of the definition of subsidiary. In addition, the
difficulty concerning torts claims which are not covered under the current
provision could have been addressed by adopting the „amount admissible in
winding up.‟ The provable debts cover a much wider wide range of claims by
creditors and are not limited to contractual debts. Creditors generally can claim
debts whether they are present or future, certain or contingent and other claims
for unliquidated damages or compensation whether in tort, contract or any other
cause of action that existed when the winding up began. 265
264 Ramsay ibid, at 543-544.
265 See section 553 of the Australian Corporations Act 2001.
291