Skip to content

CS Executive · Company Law and Practice · Introduction to Company Law

Alpha Ltd owns 100% of Beta Ltd. Beta's assets are in Beta's name, and Beta is not shown to be a sham. A creditor of Alpha seeks to attach Beta's machinery to recover Alpha's debt. Which is the correct position?

Beta's machinery cannot be attached. A wholly owned subsidiary remains a separate legal entity, so its assets are not the parent's assets, and a creditor of the parent cannot reach them unless the veil is lifted on grounds such as fraud or sham.

  1. ABeta's machinery can be attached because a wholly owned subsidiary is the same entity as its parent
  2. BBeta's machinery cannot be attached, because a subsidiary is a separate legal entity from its holding company, unless the veil is lifted on proper groundsCorrect
  3. CBeta's machinery can be attached because holding companies are always liable for all subsidiary assets
  4. DBeta's machinery is attachable only if Alpha is a private company

Explanation

Even a wholly owned subsidiary is a distinct legal person, and its assets belong to it, not to the parent. Without proof of fraud, sham or an agency-type arrangement, the veil of Beta is not lifted for Alpha's creditor. Treating subsidiary and parent as one entity is wrong in the absence of such grounds.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Company Law shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Company LawFree diagnostic mock

More Introduction to Company Law questions