Lifting the corporate Essay

The world(prenominal) ships society which called Buildco Ltd establishes a sassy company in Australia which is a wholly owned accessory of Buildco. The purpose of incorporating the infantryman is to authorize the problem of sourcing debt finance in the international marketplace. However, the shoes development suffer which is undertaken by Buildco and funded by Asset Pty Ltd is financially unviable. Consequently, the Buildco expects that the Asset could write-off the loan as a pestilential debt and submit a tax deduction. N unmatchabletheless, the Commissioner of Tax disallows the deduction for the bad debt because of the significant period in the overlap in the management of both companies and the very sizable degree of control over the directors. In order to determine that whether the bad debt can be deducted, the relationship between Asset Pty Ltd and Buildco Ltd should be analyzed. fictitious character analysis* Statute virtueAccording to the statute law, it is like ly that the subordinate company (Asset Pty Ltd) would non write-off the loan to the p bent company (Buildco Ltd) as a debt and could non claim a tax deduction for that debt. by and by lifting the weed mist by making the holding company reasonable for the debts of its subsidiary where there be reasonable grounds for suspecting than the subsidiary is belly-up(predicate) at the time of incurring the debt. In this present fortune, due to the failed project which is funded by the Asset Pty Ltd, the Buildco Ltd is financially unviable which lead to the company has to close lot the business. As a result, it may be non feasible to solve the dispute through statute law.* Case lawType of companiesCompanies direct in both private and public sectors of the economy and come in all sizes, large and small. Doubtlessly, the Buildco Ltd is a public company, and the later set up company which called Asset Ltd Pty is a proprietary.In companionshipCorporation chemical free radicalIt is more than likely to be a number of companies which be associated by popular or interlocking shareholdings, allied to unified control or aptitude to control. We all know that in many respects a convocation of companies are treat together for the purpose of general accounts, balance weather sheet and profit and loss account. They are treated as one concern. This is curiously the case when a enhance company owns all the shares of the subsidiary so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot and must do just what the foster company says. However, it is not absolute that whether treat the heighten company and a wholly owned subsidiary as a continuum. In special circumstance, the upraise company and subsidiary company could not be treated as an integral structure. In the course of Buildcos strategic plan, the corporation group is built to solve the problem of souring debt finance. Indeed, the corporation group no t only solves the problem in securing credit, but likewise victory to turn away the influence of the international financial crisis. That is, bodied group is a modern enterprise organization form which uses the Buildco Ltd ( resurrect company) as the core of economical organization.Parent and subsidiary companiesBesides, it is prevail that a large numbers of businesses are conducted by companies which share common directors. Such as the Buildco Ltd in the case have its subsidiaries in more than 10 countries. Subsidiary company is half of the shares are controlled by the advert company. That is to say, most of subsidiarys property was controlled by the call forth company, but the subsidiary and the parent are motionless separate effectual entities, with all its assets shall undertake limited liability for its debts, the parent company is based on its capital contribution or subsidiary to the holdings of shares in the limit of responsibility. As to the Buildco Ltd is the hol ding company which controls the subsidiarys (Asset Ltd Pty) venire of the director and also is in position to cast or control maximum votes at subsidiarys general meeting. potency relationshipThe agency relationship between a company and its comptroller is the ground most frequently argued. Indeed, agency relationship between the parent company and the subsidiary must be consistent with the following sextette questions 1. Were the profits treated as the profits of the parent? Yes. In this view, the subsidiaries company (Asset Pty Ltd) will be treat all of the profits as a dividend to the parent company (Buildco Ltd). 2. Were the persons conducting the business appointed by the parent? Yes. In this present case, all decision are decided by the parent company (Buildco Ltd) and then implemented by the subsidiaries company (Asset Pty Ltd). 3. Was the parent the headword and brain of the trading threaten? Yes. The three directors of the subsidiaries company (Asset Pty Ltd) come from the come on of parent company (Buildco Ltd). In new(prenominal) words, the directors should simultaneously manage the devil companies. Namely, the directors overlap in management of both companies. 4. Did the parent govern the venture decide what should be done and what capital should be used? Yes. During the board meeting, the directors of the parent company (Buildco Ltd) passed a resolution that allowed the subsidiaries company (Asset Pty Ltd) to implement a strategic. 5. Did the parent make the profits by its skill and direction? Yes. It is overt to discover that the parent company (Buildco Ltd) was established in 1950, and become the one of the worlds leading international expression companies via its own skills. 6. Was the parent in effectual and constant control?Yes. The case shows that the CEO of the parent company (Buildco Ltd) has been helm the company for nearly 20 years. In addition, the parent company (Buildco Ltd) made a large profit and strict policy.In summary, there is an agency relationship between the parent company (Buildco Ltd) and the subsidiaries company (Asset Pty Ltd). That is to say, they can be treated as a single well-grounded entity, so the subsidiary company (Asset Pty Ltd) would not write-off the loan to the parent company (Buildco Ltd) as a debt and could not claim a tax deduction for that debt. Instead, there is a similar case which is called Commissioner of Taxation v BHP Billiton finance Ltd (2010), the court held that the bad debt can be deducted due to the event that the Commissioners submissions denying theseparate legal existence of Finance Ltd. However, there are two differences between the two cases. Firstly, in the Commissioner of Taxation case, the reason of building the subsidiary company is not only solves the problem of sourcing debt finance, but also deals with the third parties. In contrast, the subsidiary company (Asset Pty Ltd) has no deal with former(a) companies, except the parent company (Buildco Ltd) . In addition, in the case of Commission, the BHP Billiton Finance Ltd makes use of the loan in both operational activity and new project, but the Asset Pty Ltd is only fund to the project of parent company. So these two case cannot be seen as the same. unified haze over and veil-piercingCorporate veilThe corporation veil can be trusted as a theoretical screen which descends on the company when it is descend and, ordinarily, prevents outsiders from peeping in to see who is in charge or control of the company. In other words, company as a legal person must be independently with all its capital contribution shall undertake liability for its legal actions and debts of the companys shareholders is limited to its investors assume limited liability to the company.Lifting the corporate veilAn examination of the Australia law concerning lifting the corporate veil on the infrastructure of an implied agency reveals that control, even overwhelming control, of a company is not qualified to c reate an implied agency between the company and the controller. Through lifting the veil of corporation, it reveals that individually company within the company is responsible for its own debts. However, in this case, the corporation veil would not need to lift due to the fact that it not fits the requirements of piercing veil. Indeed, there is no sham, fraud, avoid tax, trade with enemy avoid legal obligation, and puppet. ConclusionIn conclusion, with reasons stated above, the subsidiary company (Asset Pty Ltd) would not write-off the loan to the parent company (Buildco Ltd) as a debt and could not claim a tax deduction for that debt.Bibliography1. Harris J, Hargovan A and Adams M Australian Corporate Law, 3rd ed 2011 LexisNexis Butterworths.2. Limited liability exception the UKs lifting the veil of the Company, http//www.law-walker.net/detail.asp?id=4511.3. Judy Maguire and Anna Lenahan. (2006). AML international comparisons and lessons. Financial Services Newsletter (newslett er), 2006 strength 4 No 9.4. Professor Sharon Christensen and Professor Bill. (2012). lifting the crossroads venture veil liability of related entities for misleading conduct of agents engaged by joint venture partners. DuncanAustralian Property Law Bulletin (newsletter), 2012 Volume 26 No 8.5. Ramsay I and Noakes D. (2001). Piercing the Corporation bedim in Australia. company and securities law journal, 2001 Volume 19 No 250. 1 . Australia Statute Law, s558v 2 . pram v Wimborne (1976) 137. 3 . Limited liability exception the UKs lifting the veil of the Company, http//www.law-walker.net/detail.asp?id=4511 4 . Lonrho ltd. v. Shell Petroleum Co., Ltd. (1980). 5 . Salomon v Salomon & Co Ltd (1897) AC22. 6 . Australia Corporation Law, s46. 7 . Ramsay I and Noakes D, piercing the Corporate Veil in Australia (2001) 19 Company and Securities Law Journal 250. 8 . metalworker Stone & Knight Ltd v Birmingham Corp (1939) 4 ALL ER116. 9 . Smith stone &Knight Ltd v Briminghan Corp (1939) 4 wholly ER 116 10 . Commissioner of Taxation v BHP Billiton Finance Ltd (2010) 182FCR 11 . Harris J, Hargovan A and Adams M Australian Corporate Law, 3rd ed 2011, LexisNexis Butterworths 182 12 . Winland enterprises group inc. v Wex pharmaceuticals inc. (2012) HKCA 155. 13 .