Lifting the corporate Essay

The international ph mavenr which c eached Buildco Ltd establishes a new bon ton in Australia which is a wholly owned hyponym of Buildco. The purpose of incorporating the footslogger is to discharge the problem of sourcing debt finance in the international marketplace. However, the property development project which is undertaken by Buildco and funded by summation Pty Ltd is financially unviable. Consequently, the Buildco expects that the Asset could write-off the impart as a bad debt and yell a tax deduction. Nonetheless, the Commissioner of Tax disallows the deduction for the bad debt because of the significant degree in the lap in the management of both companies and the very large degree of control over the directors. In order to determine that whether the bad debt can be deducted, the family relationship between Asset Pty Ltd and Buildco Ltd should be analyzed.Case analysis* Statute lawAccording to the statute law, it is likely that the subsidiary lodge (Asset Pty Ltd ) would not write-off the loan to the rear attach to (Buildco Ltd) as a debt and could not claim a tax deduction for that debt. After lifting the corporation veil by making the belongings party liable for the debts of its subsidiary where there are reasonable grounds for suspecting than the subsidiary is insolvent at the time of incurring the debt. In this present case, imputable 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 down the business. As a result, it may be not feasible to solve the dispute through statute law.* Case lawType of companiesCompanies operate 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.IncorporationCorporation groupIt is more likely to be a number of companies which are associated by commonplace or i nterlocking shareholdings, allied to unified control or capacity to control. We all know that in many respects a group of companies are inured together for the purpose of general accounts, balance sheet and profit and loss account. They are inured as one concern. This is especially the case when a parent company owns all the shares of the subsidiary so much so that it can control either movement of the subsidiaries. These subsidiaries are bound hand and foot and must do just what the parent company says. However, it is not absolute that whether treat the parent company and a wholly owned subsidiary as a continuum. In special circumstance, the parent 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 only solves the problem in securing credit, still also success to forfend the influence of the interna tional financial crisis. That is, corporate group is a modern endeavor organization form which uses the Buildco Ltd (parent company) as the core of economic 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 parent company. That is to say, close of subsidiarys property was controlled by the parent company, but the subsidiary and the parent are still separate legal entities, with all its assets shall undertake contain 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 holding company which controls the subsidiarys (Asset Ltd Pty) board of the director and also is in position to cast or control maximum votes at subsidiarys general meeting. delegation relationshipThe function relationship between a company and its controller is the ground most frequently argued. Indeed, agency relationship between the parent company and the subsidiary must be consistent with the following six 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 finality are decided by the parent company (Buildco Ltd) and then implemented by the subsidiaries company (Asset Pty Ltd). 3. Was the parent the head and brain of the trading venture? Yes. The terzetto directors of the subsidiaries company (Asset Pty Ltd) come from the board of parent company (Buildco Ltd). In other words, the directors should simultaneously manage the both companies. Namely, the d irectors 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 conspicuous to discover that the parent company (Buildco Ltd) was established in 1950, and become the one of the worlds 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 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 tre ated as a single legal 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 corresponding case which is called Commissioner of Taxation v BHP Billiton pay Ltd (2010), the court held that the bad debt can be deducted due to the fact 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 other 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. collective veil and veil-piercingCorporate veilThe corporation veil can be trusted as a supposed 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 confiscate 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 sufficient to create an implied agency between the company and the controller. Through lifting the veil of corporation, it reveals that each 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 riddance the UKs lifting the veil of the guild, 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 eng aged by joint venture partners. DuncanAustralian Property Law Bulletin (newsletter), 2012 Volume 26 No 8.5. Ramsay I and Noakes D. (2001). Piercing the Corporation greater omentum 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 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 . Smith Stone & Knight Ltd v Birmingham Corp (1939) 4 ALL ER116. 9 . Smith stone &Knight Ltd v Briminghan Corp (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 Butterwor ths 182 12 . Winland enterprises group inc. v Wex pharmaceuticals inc. (2012) HKCA 155. 13 .