Essay - Define the Issues that Arise Out of the Facts of...

Define the issues that arise out of the facts of ***** case study.

There are several issues ***** arise from this case. First, Cautious creates Radical as a wholly owned subsidiary, which proceeds to engage in risky ventures. The board ***** direc*****rs is the same for both of *****se companies. ***** proceeds to enter into contracts in a country th*****t Britain has banned its citizens and nationals from doing business with. A firm incorporated in this country owes Radical money, and Radical is seeking legal recourse to recoup ***** money.

***** third firm, also wholly ***** by *****, is created that acts as a holding company, and rents office space to Radical. This firm's rental properties are being seized in an eminent domain *****, in which ***** is incurring losses because it is ***** forced to re-locate. These it hopes to re-coup ***** the local government. O*****r offices used by Radical were insured by Cautious, ***** the insurance ***** is unwilling to pay for damages incurred in a fire. Furthermore, Radical is insolvent and Cautious w*****hes ***** know if it is liable ***** Radical's debts.

*****. Explaining the key relevant legal principles with clarity and precision, and supporting *****se explanations with appropriate reference to case law.

The problem that arises is one of liability. Radical Ltd. is ***** as a 'shell' entity, presumably for the purpose of engaging in risky business that ***** parent company is unwilling ***** attach to its name. In such cases, much relies on whether or not it can be proven in court that th***** is the express reas***** ***** the creation of the new entity. If it *****, the ***** company can ***** considered liable if ***** secondary firm *****curs unexpected *****. Because the directors of ***** ***** are ***** the ***** of the other, they can be found criminally liable if the secondary firm knowingly engages in illegal activities.

***** an answer to this, we turn to the Companies Act 1989. This defined the idea of a "corporate group." It implemented ***** Seventh Company Law Directive on consolidated accounts (***** 83/349/EEC, [1983] OJ L193/1) This was fully implemented in April ***** 1990.

According to these laws (which have significant ramifications in accounting,) ***** accounts must be produced in respect of corporate groups compris*****g a p*****nt undert*****king and its subsidiary undertakings. The definitions ***** parent undertaking and subsidiary undertaking cover ***** companies and their subsidiaries using concepts of majority voting control. This applies, as the case may *****, when two companies share a group of direc*****rs. A comp*****ny is a parent ***** and another is its subsidiary undertaking if: (i) the ***** unit holds a ***** of the voting rights in the subsidiary unit; (ii) the parent unit is a member ***** the ***** unit ***** has the right to appo*****t or remove the majority of its board of directors; or (iii) the ***** ***** is a member of ***** subsidi*****ry unit and *****s alone, pursuant to an agreement with other shareholders, a ***** *****