How are debts owed to family members dealt with in divorce proceedings?
The first question for the court to determine is whether the debts are legitimate, and this is a...
The Supreme Court has recently dismissed an appeal against the Court of Appeal decision in the case of Farstad Supply AS v Enviroco Ltd regarding the application of the Companies Act decision on subsidiary companies. Whilst likely in practice to be of relatively limited application, it does mean that lawyers will need to continue to exercise care in defining the concept of a subsidiary for the purpose of security and other contractual documentation.
The Companies Act 2006 section 1159 provides that a company is a subsidiary of another, if that other company:-
- holds a majority of the voting rights in it; or
- is a member of it and has the right to appoint or remove a majority of its directors; or
- is a member of it and controls, pursuant to an agreement with other members, a majority of the voting rights in it.
In the Farstad case, the registered title to shares had been transferred to a bank as security. Even though the "parent" company controlled a majority of the voting rights, the court held that as it was not a member (ie a registered member) of the relevant company then the company did not fall within the definition of a subsidiary under the Act (to which the relevant contract referred).
It is relatively rare in the UK for shares which are charged to be transferred to the chargee, but most lawyers will continue to err on the side of caution by stating expressly in their contracts that a company is a member of another even if its shares are registered in the name of a third party.