Lifting veil in group situations

Hi Robbie,

Both Adams v Cape Industries and the more recent case of Lungowe v Vedanta essentially say the same thing in that a Parent Company can be held liable for the debts of a subsidiary company i.e that the veil of incorporation can be lifted.

For the exam the position is unchanged i.e. the general rule is that a Parent company is not liable for its subsidiaries but in some circumstances the veil can be lifted for e.g Adams v Cape and Lungowe v Vedanta.

I hope that clarifies the position.

Kind regards,

Vijay

Hi Robbie,

So the default/normal position is that a Parent Company is a separate legal entity to its subsidiaries. Because they are 2 separate entities it means that the debts of the subsidiary company are not the responsibility of the Parent company.

However, in exceptional circumstances like Adams v Cape where the court finds the following:

– The subsidiary is acting as agent for the holding/parent company
– The group is to be treated as a single economic entity because of statutory provision
– The corporate structure is being used as a sham

The purpose of lifting the veil might be for example circumstances where individuals have a claim against the subsidiary company for compensation but that subsidiary does not have the money, the veil can therefore be lifted so that the parent company contributes to paying those debts.

I hope this clarifies.

Kind regards,

Vijay

My pleasure 🙂