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ACCA Applied Skills · Corporate and Business Law (Global) · Corporations and legal personality

Orion Ltd is a parent company owning 100% of Pellam Ltd. Pellam Ltd's liquidator argues that Orion Ltd should pay Pellam's debts because the two form a single economic unit and the group is run as one business. There is no fraud or sham. Under the prevailing approach in common law jurisdictions, what is the most likely outcome?

The claim most likely fails. Courts do not treat a corporate group as one entity merely because of common control or economic unity. Each company is separate, and the veil is lifted only for sham, facade or established agency, none of which is present.

  1. AOrion Ltd is liable because group companies are treated as one entity
  2. BThe claim fails because each group company is a separate legal person and no fraud or sham is shownCorrect
  3. COrion Ltd is liable only because it is the parent, whatever the facts

Explanation

Courts generally refuse to treat a group as a single entity merely because of common control (Adams v Cape Industries). Each company remains separate unless it is a sham or facade, or agency is established. No such evidence exists here, so the claim fails.

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