have had a number of cases that looked at this issue. The analysis of company law in the United Kingdom is divided to show the difference in treatment prior to and after Adams.13

(A) The Concepts of Limited Liability, Separate Legal Personality, and Lifting the Veil

This section examines the principles of limited liability, separate legal personality and lifting the veil as well as their legal justifications and their application to groups of companies. These principles are the foundational concepts of company law, but they may not be easy to apply to cases of cross-border insolvency of MCGs, because they have been established from situations relating to individual companies.14 Although limited liability is the logical result of the existence of separate legal personality, these two concepts are not the same.15 The principle of corporate personality connotes that each company is a separate legal personality distinct from its members or shareholders. Accordingly, a company has its own rights and duties, which are different from its members, and it is empowered to sue and to be sued in its name.16 The property of the company is not the property of its shareholders.17 Thus, individual companies in an MCG are deemed to have a separate legal personality different from those of other companies of the same group.18

13Adams v Cape Industries Plc [1990] Ch 433.

14I M Ramsay, ‘Models of Corporate Regulation: The Mandatory Enabling Debate' in R Grantham and C.

Rickett (eds), Corporate Personality in the 20th Century (Hart Publishing 1998) 215, 253.

15Alan Dignam and John Lowry, Company Law (8th edn, Oxford University Press 2014) 151.

16Salomon v Salomon & Co [1897] UKHL 1, [1897] AC 22; Foss v Harbottle [1843] 67 ER 189.

17Damien Murphy, ‘Holding Company Liability for Debts of Its Subsidiaries: Corporate Governance Implications’ (1998) 10 Bond Law Review 241; Dario Milo, ‘The Lability of A Holding Company for the Debts of Its Subsidiary: Is Salomon Still Alive and Well?’ (1998) 115 The South African Law Journal 318.

18José Engrácia Antunes, Liability of Corporate Groups: Autonomy and Control in Parent-Subsidiary Relationships in US, German, and EEC Law: An International and Comparative Perspective (Kluwer Law and Taxation Publishers 1994) 2; Hector Miguens, ‘The Insolvent Subsidiary and Liability of the Parent Corporation in the USA, Argentina and UNCITRAL’ (2010) 19 International Insolvency Review 239.

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The principle of limited liability connotes that if the debts of a company exceed its assets, the shareholders are not responsible for the losses and debts of the company.19 Similarly, with MCGs, each company in the group is distinct and the assets of the entire group are not available to cover the liability incurred by one of its subsidiaries.20 Hence, if the assets of one member of the group are insufficient to pay its debts, some of its creditors may be left unsatisfied.21

Regarding corporate groups, the general principle is that the parent company is not liable for the debts of its subsidiaries, even when the assets of the subsidiary are insufficient to cover its debts.22 The primary purpose of the principle of limited liability is to achieve a balance between maximising the wealth of the shareholders and protecting creditors adversely affected by the activities of the corporation.23 Limited liability also helps reduce transaction costs because it saves the company the process of negotiating and inserting terms and conditions into each of its contracts, as the shareholders know in advance that their liability is limited to the amount they invest in the company.24 Other purposes include the decrease in the need to monitor the management of the company, which further reduces the agency costs, as the risk of losses is limited to the money that the shareholders have invested.25

19Helen Anderson, ‘Challenging the Limited Liability of Parent Companies: A Reform Agenda for Piercing the

Corporate Veil’ (2012) 22 Australian Accounting Review 129.

20Robert Thompson, ‘Piercing the Veil: Is the Common Law the Problem’ (2005) 37 Connecticut Law Review

619, 621; Brenda Hannigan, Company Law (3rd edn, Oxford University Press 2012) 64.

21Angualia Daniel, ‘Goals of a Multinational Corporation and the Role of a Financial Manager’ [Unpublished] (SSRN, 31 July 2010). <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1651469> accessed 27 May 2016.

22Mevorach (n 1) 33.

23Anderson (n 19) 130.

24Michael Whincop, ‘Painting the Corporate Cathedral: The Protection of Entitlements in Corporate Law’

(1999) 19 Oxford Journal of Legal Studies 19.

25Frank Easterbrook and Daniel Fischel, ‘Limited Liability and the Corporation’ (1985) 52 University of Chicago Law Review 89, 94; Andrew Keay, ‘Wrongful Trading and the Liability of Company Directors: a Theoretical Perspective’ (2005) 25 Legal Studies 431,449.

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The above reveals that the concept of limited liability applies primarily and in principle to individual companies and not to MCGs. Having analysed the concept of limited liability, it is also important to examine the concept of separate legal personality to determine whether it can be applied to MCGs’ situations. In the context of corporate groups, avoidance of responsibility can be achieved by interposing a separate legal entity between the victim and ultimate controller of the group, be it a parent-company or its controlling shareholders. However, there is a debate as to whether the principle of separate legal personality should be retained or ignored.26 The answer to this question is not straightforward because some of the justifications for having separate personality for individual companies are absent in the context of MCGs. For instance, the reduction of the monitoring costs and the promotion of risk diversification may not be considered strong justifications in the case of MCGs.27 In this regard, Farrar points out that the strict application of corporate personality principle in the case of MCGs may lead to two limited liabilities, i.e. ‘limited within limited liability’, and that company law does not support this approach.28 In line with this assertion, it is argued that there is no such concept as ‘double’ limited liability in the case of MCGs because each company in the group is separate with its own liability.29

Furthermore, Griffin contends that separate legal personality should be abolished in the case of subsidiary companies.30 This is because it leads the parent company to exploit the

26 See for example Peter Muchlinski, ‘Limited Liability and Multinational Enterprises: A Case for Reform?’

(2010) 34 Cambridge Journal of Economics 915-928; John Farrar, Corporate Governance in Australia and New Zealand (Oxford University Press 2001); Phillip Blumberg, The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality (Oxford University Press 1993); Kevin Wardman, ‘The Search for

Virtual Reality in Corporate Relations’(1994) 6 Company Lawyer 179; Phillip Blumberg, ‘Limited Liability and Corporate Groups’ (1986) 11 Journal of Corporation Law 578; Philip Blumberg, ‘The Transformation of Modern Corporation Law: The Law of Corporate Groups’ (2005) 37 Connecticut Law Review 605.

27Murphy (n 17) 241.

28Farrar (n 26) 229.

29Blumberg (n 26) 59; Nicole Stolowy, ‘The Concepts of the Group of Companies: The Specificity of the French Model’ (2014) 8 Journal of Business Law 640.

30Steve Griffin, ‘Limited Liability - A Necessary Revolution’ (2004) 25 Company Lawyer 99.

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subsidiaries in order ‘to wash their hands from all financial responsibility of the subsidiary failure’.31 Nevertheless, it is argued that the parent company will not leave its subsidiaries to face substantial losses without any intervention, as this would have a direct impact on the entire group.32 Another point is that Griffin’s argument does not provide clear criteria to demonstrate when the parent company can exploit its subsidiaries so that the courts can hold the parent company responsible for such acts. In recognition of the foregoing argument, Blumberg notes that the principle of separate legal personality was created before MCGs even existed.33 Thus, from Blumberg's point of view the principle was established to provide more protection to public investors, not the enterprise itself. Therefore, it is proposed that the principle should not be abolished but should apply to MCGs, because to treat individual companies in an MCG as one single entity is not desirable.

Indeed, treating all of the companies within the same group as a single entity may lead to undesirable results because it is against the expectations of the minority shareholders and creditors and does not serve their interests.34 Furthermore, Muscat and Ramsay argued that the principle of separate legal personality in the context of MCGs is weak and merits critical re-examination.35Thus, in the United Kingdom, the courts developed the principle of separate legal personality in the seminal case of Salomon v Salomon36, and almost a century later in

31Griffin (n 30) 100.

32Brad Erens, Scott Friedman and Kelly Mayerfeld, ‘Bankrupt Subsidiaries: The Challenges to the Parent of Legal Separation’ (2008) 25 Emory Bankruptcy Development Journal 65.

33Blumberg (n 26) 59; Karl Hofstetter, ‘Parent Responsibility for Subsidiary Corporations: Evaluating European Trends’ (1990) 39 International and Comparative Law Quarterly 576.

34Peter Muchlinski, Multinational Enterprises and the Law (Blackwell 2005) 327; Joseph Sommer, ‘The Subsidiary: Doctrine Without A Cause?’ (1990) 59 Fordham Law Review 227.

35Andrew Muscat, The Liability of the Holding Company for the Debts of Its Insolvency Subsidiaries

(Dartmouth 1996) 39; see also I M Ramsay, ‘Models of Corporate Regulation: The Mandatory Enabling Debate' in R Grantham and C. Rickett (eds), Corporate Personality in the 20th Century (Hart Publishing 1998) 215 and

36Salomon v Salomon & Co Ltd. [1897] UKHL 1, [1897] AC 22.

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Adams v Cape Industries,37 the Court of Appeal reaffirmed the intention to treat individual companies in a corporate group as separate legal entities. However, in Beckett38, Maurice Key

LJ rejected what he called a ‘purist interpretation’ of corporate personality and went on to support Lord Denning’s view of single economic entity.39 Similarly, in Samengo Turner40 the Court of Appeal treated a group of companies as a single legal entity on the basis of their single economic interest. The difference in outcome between these cases shows that even though this was a period of activism in the courts of the United Kingdom, there was no consensus among the judiciary regarding the circumstances that require adoption of the

‘single economic unit’ instead of respecting the principle of separate legal personality.

However, it soon became clear that there was not enough support to deviate from the sacrosanct Salomon principle. As a result, in the Prest case,41 the Court referred back to the

Salomon principle, noting that MCGs should not be treated as single economic entities. From the foregoing, it is apparent that the principle of corporate legal personality applies to individual companies. However, its application to the context of MCGs seems to be fraught with irregularities, as it is not clear what factors are taken into consideration in the decision to treat MCGs as single economic entities or to apply the corporate personality principle to individual companies within the MCG. The next subsection examines some of the cases in detail to determine what factors the courts consider in determining whether to treat an MCG

37Adams v Cape Industries Plc [1990] Ch 433 (hereinafter ‘Adams’ case’)

38Beckett Investment Management Group Ltd v Hall [2007] EWCA Civ 613, [2007] ICR 1539; DHN Food Distributors Ltd v Tower Hamlets LBC [1976] 3 AII ER 462.

39ibid, DHN Food Distributors 467, ‘single economic entity’ found its originality in the dictum of Lord Reid in the case of Harold Holdsworth & Co (Wakefield) Ltd v Caddies [1995] 1 WLR 352, 367, where he said ‘…My Lords, in my judgment…the appellant company owned the whole share capital of British Textile Manufacturing Co Ltd…the appellants could control the internal management of their subsidiary companies…’

40Samengo-Turner v J&H Marsh & McLennan (Services) Ltd, [2007] EWCA Civ 723, [2008] IRLR 237.

41Prest v Petrodel Recourses Ltd [2013] UKSC 34, [2013] 3 WLR 1. See also VTB Capital Plc v Nutritek international Corp [2013] UKSC 5, [2013] 2 WLR 398; Nigel Shepherd, ‘Petrodel v Prest: Charter or Legal Consistency’ (2013) 1 Private Client Business 40.

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