The Recognition and Treatment of Corporate Groups in the UK

1. The Recognition and Treatment of Corporate Groups in the UK David Cabrelli Senior Lecturer in Commercial Law, University of Edinburgh, Scotland, UK

2. Contents • Introduction • Liability • Benefits • Private Law Techniques • Conclusion

3. (1) Introduction: Some background • Recognition • Separate Legal Personality: Salomon v Salomon and Co Ltd [1897] AC 22 • Corporate Groups: Re Southard & Co Ltd [1979] 1 WLR 1198 (CA) 1208, 1218 per Templeman LJ: “English company law possesses some curious features, which may generate curious results. A parent company may spawn a number of subsidiary companies, all controlled directly or indirectly by the shareholders of the parent company. If one of the subsidiary companies, to change the metaphor, turns out to be the runt of the litter and declines into insolvency to the dismay of its creditors, the parent company and the other subsidiary companies may prosper to the joy of the shareholders without any liability for the debts of the insolvent subsidiary.”

4. (2) Liability • Corporate Law • Piercing the Corporate Veil • Adams v Cape Industries plc [1990] Ch 433 • Prest v Petrodel Resources Ltd. [2013] 2 AC 415 • ‘concealment’ • ‘evasion’

5. (2) Liability • Nominee directors? • Hawkes v Cuddy [2010] 2 BCC 597 – no duty to nominator • Prioritisation of nominator’s interest will be a breach • Duties may be owed via contract or as an employee, agent, etc. • But, cannot detract from duties owed to company

6. (3) Benefits • Sections 1261 and 1159 CA 2006: • “group”, in relation to a body corporate, means the body corporate, any other body corporate which is its holding company or subsidiary and any other body corporate which is a subsidiary of that holding company; • A company is a “subsidiary” of another company, its “holding company”, if that other company– (a) holds a majority of the voting rights in it, or (b) is a member of it and has the right to appoint or remove a majority of its board of directors, or (c) is a member of it and controls alone, pursuant to an agreement with other members, a majority of the voting rights in it, or if it is a subsidiary of a company that is itself a subsidiary of that other company.

7. (3) Benefits • Accounting: Section 399 CA 2006 – duty on directors of parent company to produce group accounts for each financial year of parent company •  Sections 415 CA and 414A – 414D CA 2006 – directors’ to prepare a group directors’ report and group strategic report for the group in respect of each financial year • Loans to directors – exceptions for intra-group loan transactions – s. 208 CA 206 • Konzernrecht?

8. (4) Private Law Techniques • ‘Tort Law/Delict • Recent developments • Newton-Sealey v ArmorGroup Services Ltd. [2008] EWHC 233 • Chandler v Cape Plc [2011] EWHC 951 (QB): • Special relationship between the parent and the claimant based on an assumption of responsibility

9. (4) Private Law Techniques • Chandler v Cape Plc [2011] EWHC 951 (QB): • Special relationship between the parent and the subsidiary based on actual rather than ability to control conduct that gave rise to the harm • Cf Thompson v Renwick Group Plc [2015] BCC 855 – appointment of H&S director to subsidiary’s board by parent did not give rise to duty of care to employee of subsidiary

10. (4) Private Law Techniques • ‘Ad hoc’ agency • Whitbread Group Plc v Goldapple Ltd (No 2) 2005 SLT 281; • Laurence McIntosh Ltd v Balfour Beatty Group Ltd and the Trustees of the National Library of Scotland [2006] CSOH 197; and • John Stirling t/a M & S Contracts v Westminster Properties Scotland Ltd. [2007] CSOH 11787

11. (4) Private Law Techniques • ‘Black hole’/’transferred loss’ rights: Linden Garden Trust Ltd. v Lenesta Sludge Disposal Ltd. [1994] 1 A.C. 85 and Axon Well Intervention Products Holdings AS v Craig [2015] CSOH 4; 2015 GWD 5-96 • Jus quaesitum tertio – joint intention of contracting parties to benefit group company • ‘Network’ theory?

12. (5) Conclusion • Limited acknowledgement of corporate groups • Private Law as gap-filler • Appropriateness?