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The separate legal personality concept has been the extended to the group of
companies situation. New Zealand and Australia have taken radical step to ensure
that holding company is liable for the debts of its subsidiary. The provision listed
some factors which courts should take into account when ordering the holding
company to be liable for the debts if its subsidiary. Although the UK and Malaysia
do not have specific provisions, the factors court insisted on before an order is
similar, namely the control exercised by the holding company over subsidiary.
Courts will insist on clear evidence that the subsidiary is totally controlled by its
holding company and in case of partly owned subsidiary, courts are adamant to hold
them separate. The New Zealand and Australian statutes allow directors of
subsidiaries to act in the interests of its holding company provided that the subsidiary
is solvent. New Zealand provisions also allow directors to act in the interests of the
holding company even though it is not in the same interest of the subsidiary.
The courts have been reluctant to pierce the corporate veil to hold the person
managing the company responsible for their actions although the courts show
tendency to do so when fraud is involved. Relating to creditors’ interests, courts only
imposed a liability on directors for causing the company to trade when it is insolvent
in the 1970’s. Due to courts’ reluctance to lift the veil, Parliament enacted legislation
to impose liability on directors who have breached their duty when the company is
insolvent.
The liability imposed on directors for trading whilst the company is insolvent
originates from the common law concept of fraud. The current insolvency trading
provision was enacted as a result of the difficulty of establishing intention for fraud
cases. Parliament therefore extended the familiar concept of fraud to cover situations
where directors are merely negligent or reckless.
Each jurisdiction has its own statute and due to the differences in the drafting of the
provisions, the time liability can be attached to directors and the elements to be
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