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VIC New Holding Company for Loss-making Subsidiary - Is It Legal?

Discussion in 'Commercial Law Forum' started by strange_entity, 22 September 2015.

  1. strange_entity

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    WARNING: This is rather complex, but I hope that won't scare off some smart legal minds. Please offer your thoughts and expertise regarding the degree of legality within the following scenario:


    Company A is a publicly listed parent of Company B which has lost millions of dollars for each of the past few financial years.

    Four weeks before the end of the financial year, there is an announcement that Company A is to be bought out by Company C, a large multi-national. As part of this agreement, Company A's before-tax earnings for the financial year must not be below X million dollars. This would surely not be possible if Company B was still a subsidiary.

    But fortunately one month before this announcement, Company B had been purchased by Company D - which is registered in a particularly notable overseas " tax haven" with lax requirements for business document lodgement. And Company D's owners (who are also the 2 new directors of Company B) are seemingly unrelated to anyone involved in the original holding company structure. However, it should be noted that the managing director of Company A remains as a director of Company B throughout this entire timeline.

    After a few months, Company D registers its name in Australia.

    A year passes and the 2 new directors of Company B resign and the parent (Company D) changes its trading name to one associated with a business owned/managed/run by the family members of Company B's remaining director who, as mentioned above, was the managing director of Company A - the holding company that flogged off Company B only a year or so beforehand!


    And for good measure, one of these family members actually becomes a director and the secretary of Company B for a few months.


    Can anyone provide the legal terms under Commercial Law for such behaviour and suggest how bad it is on a scale of 1 to10? I mean, I consider it to be incredibly dodgy, but I'm aware that company law doesn't always share my level of ethics.

    Sorry, I know it's complicated, but I'm just the poor guy who stumbled across this.

    Thanks (in advance!)
     
  2. Rod

    Rod Well-Known Member

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    Bad is a relative term. Who is it bad for? Suspect the owners don't think it is bad.

    Who has been disadvantaged by this behaviour?
     
  3. strange_entity

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    Thanks for the reply Rod. Indeed 'bad' is a relative term, so let me rephrase it.

    Is it legal?

    One thing I didn't mention was a couple of years later, the final purchaser of Company B (let's call them Company E) was known by a nearly identical acronym to the original holding company's (Company A). Note: Both Company A's and Company E's logo used their acronym rather than full name. Hence new customers (and prospective investors) may well have thought the original company was still in charge, potentially useful when reactivating a company after a few years of inactivity. Company B collapsed within 14 months owing customers millions with the allegation of insolvent trading being corroborated by multiple staff members. And just to confuse you even further, Company E managed its subsidiary (Company B) out of Company D's office space!

    Just remember, Corporate Law isn't my strong suit, hence why I'm here. Cheers.
     
  4. Rod

    Rod Well-Known Member

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    Does 'Company B collapsed' mean that a company administrator/insolvency firm was brought in?

    If so, did they investigate claims of insolvent trading? They normally do investigate this behaviour so they can recover more money for creditors. Just so happens to take them longer. The fact that they make more money doing this is not relevant to your facts. ;)

    Potentially too complex for this forum to answer. Much may depend on the detail and timing of key events.
     
  5. strange_entity

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    Yes, I assumed it was probably a bit too complex. Especially since I'm complicating matters further by hiding the relevant names.

    From what I gather, receivers were appointed for Company E. Supposedly there was no money for creditors, which is in stark conflict with the independent findings of 2 of the most reputable auditing firms, which somehow signed off on there being $2M+ in assets at the time of collapse.

    Cheers for the feedback Rod.
     
  6. Rod

    Rod Well-Known Member

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    BTW, did this involve a labour hire company (based in NSW I think)? If so, the administrator/liquidator is supposed to be asking the court for guidance on how to proceed. Search LinkedIn for details.
     
  7. strange_entity

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    Nope, a different industry altogether.
     

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