Lifting the corporate Essay

The foreign c tout ensembleer-up which called Buildco Ltd establishes a new friendship in Australia which is a wholly consumeed auxiliary of Buildco. The enjoyment of incorporating the subordinate word is to solve the occupation of sourcing debt finance in the transnational marketplace. However, the property development puke which is undertaken by Buildco and entrepoted by Asset Pty Ltd is financially unviable. Consequently, the Buildco expects that the Asset could set down the loan as a big(p) debt and contain a tax revenue deduction. Nonetheless, the Commissioner of Tax disallows the deduction for the poor debt beca do of the signifi basist degree in the lick in the management of both companies and the very greathearted degree of enclose over the directors. In order to hold in that whether the bad debt can be deducted, the race amongst Asset Pty Ltd and Buildco Ltd should be analyzed.Case analysis* commandment policeAccording to the statute law, it is likel y that the foot soldier guild (Asset Pty Ltd) would non write-off the loan to the put forward conjunction (Buildco Ltd) as a debt and could not margin call a tax deduction for that debt. After lifting the society veil by making the holding caller-out liable for the debts of its subsidiary where there ar rational grounds for suspecting than the subsidiary is insolvent at the sequence of incurring the debt. In this present example, delinquent to the failed project which is funded by the Asset Pty Ltd, the Buildco Ltd is financially unviable which lead to the order has to close down the business. As a result, it may be not feasible to solve the battle through statute law.* Case law attri thate of companiesCompanies operate in both private and creation sectors of the economy and come in all sizes, large and small. Doubtlessly, the Buildco Ltd is a public participation, and the later set up smart set which called Asset Ltd Pty is a proprietary.In potful spate stemIt is more likely to be a number of companies which are associated by common or interlocking shareholdings, allied to unified control or capacity to control. We all know that in numerous respects a group of companies are tough together for the purpose of general accounts, balance canvass and returns and loss account. They are hatched as one concern. This is especially the racing shell when a upraise high society owns all the shares of the subsidiary so much(prenominal) so that it can control every course of the subsidiaries. These subsidiaries are bound hand and foot and must(prenominal) do just what the prove companionship says. However, it is not absolute that whether treat the arouse caller-up and a wholly owned subsidiary as a continuum. In special circumstance, the prove 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 not completely solves the problem in securing credit, but in any case advantage to avoid the influence of the international financial crisis. That is, collective group is a modern enterprise organisation form which uses the Buildco Ltd ( provoke company) as the core of economic organization. foster and subsidiary companiesBesides, it is prevail that a large meter of businesses are passed 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 one-half of the shares are controlled by the parent company. That is to say, most of subsidiarys property was controlled by the parent company, but the subsidiary and the parent are still remove statutory entities, with all its assets shall undertake cooked indebtedness for its debts, the parent company is based on its crown contribution or subsidiary to the holdings of shares in the limit of responsibility. A s to the Buildco Ltd is the holding company which controls the subsidiarys (Asset Ltd Pty) board of the director and also is in carriage to cast or control maximum votes at subsidiarys general meeting.Agency relationshipThe berth relationship between a company and its controller is the ground most frequently argued. Indeed, mission relationship between the parent company and the subsidiary must be consistent with the following sixer 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 consequently implemented by the subsidiaries company (Asset Pty Ltd). 3. Was the parent the well and brain of the trading profess? Yes. The three directors of the subsidiaries comp any (Asset Pty Ltd) come from the board of parent company (Buildco Ltd). In other words, the directors should simultaneously manage the two companies. Namely, the directors overlap in management of both companies. 4. Did the parent baffle the venture decide what should be done and what swell 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 dexterity and direction? Yes. It is conspicuous to discover that the parent company (Buildco Ltd) was established in 1950, and become the one of the globes leading international building 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 manoeuver 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 adept reasoned 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 fact that the Commissioners submissions denying theseparate ratified 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 other companies, except the parent co mpany (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 namen as the same. merged veil and veil-piercingCorporate veilThe corporation veil can be trusted as a theoretical privacy 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 peculiar(a) 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 basis of an implied agency reveals that control, even overwhelming control, of a company is not su fficient to create an implied agency between the company and the controller. Through lifting the veil of corporation, it reveals that each company in spite of appearance 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 (newsletter), 2006Volume 4 No 9.4. Professor Sharon Christensen and Professor Bill. (2012). lifting the joint venture veil liability of related entities for misleading conduct of agents engaged by joint venture partners. DuncanAustralian attribute Law Bulletin (newsletter), 2012 Volume 26 No 8.5. Ramsay I and Noakes D. (2001). Piercing the lodge blot out in Australia. company and securities law journal, 2001 Volume 19 No 250. 1 . Australia Statute Law, s558v 2 . Walker 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 fossil oil 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 ledger 250. 8 . smith Stone & Knight Ltd v Birmingham Corp (1939) 4 ALL ER116. 9 . Smith stone &Knight Ltd v Briminghan Co rp (1939) 4 All 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 .