TABL 2741 – Business Entities
On the Treatment of Corporate Groups under the Australian Legal System
Summary:
Built on thousands of years of tradition, the contemporary legal system is as thorough and complete as it has ever been. Despite this, corporations law has evolved much more recently and, though ever evolving, often struggles to keep pace with the corporate sphere it governs. A key example of this is with respect to corporate groups, a relatively new form of conglomerate and one which works to exploit a legal system which is forced to compensate constantly. Corporate groups often take advantage of the concept of separate legal entity to isolate risks to certain …show more content…
However, directors of corporate groups often abuse the principles and concepts legally available to them in order to improve the performance of certain companies within the group, which often results in the case and statute law having to evolve more rapidly than in other fields, and which is discussed in the following pages. Section One will discuss corporate groups under the circumstances expected by the legal system, including a clear definition of a corporate group and identification of the special circumstances awarded to such groups, such as the concept of separate legal entity and a brief discussion of the corporate veil. Then, Section Two will discuss the reality of the modern corporate group, focusing on the issues faced by many corporate groups under today’s legal system and then applying this to contemporary cases and …show more content…
This corporate veil typically enforces the notion of a separate legal entity for each company within the group, but can be lifted under certain circumstances in order to oblige responsibility on the parent company . This lifting is a ‘safety valve’ designed to prevent and circumvent the most blatant abuses by and of corporate groups. In cases such as Patrick Stevedores, the lifting of the corporate veil can help to ensure the overall well-being of the parties impacted by subsidiary insolvency . Even with the option to lift the corporate veil, it can still be very difficult to successfully gain reparations against directors and holding companies . The notion of a separate legal entity essentially enables companies to deny responsibility for subsidiary companies which they may control to some extent by arguing that the subsidiary company was acting for itself and was a separate legal entity with its own, distinct, legal liabilities. Despite this, it was held in the James Hardie case that a subsidiary could not have a separate legal entity for some purposes where the parent or holding company had a significant control over the subsidiary . However, this is not inferred lightly and can lead to significant complications and difficulties in