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

Orlin Holdings Ltd owns all the shares in Orlin Trading Ltd. Orlin Trading Ltd is insolvent, and its creditors argue that the holding company should pay its debts because both are run as one economic unit by the same directors. Applying the traditional approach of the courts, what is the most likely result?

Orlin Holdings Ltd is not liable merely because of the group structure. Each company in a group is a separate legal person, and shared directors or running the group as one economic unit does not justify lifting the veil without fraud or a sham.

  1. AOrlin Holdings Ltd is liable, because a group is treated as a single entity
  2. BOrlin Holdings Ltd is liable, because the companies share the same directors
  3. COrlin Holdings Ltd is not liable merely because of the group structure, as each company is a separate legal personCorrect
  4. DOrlin Holdings Ltd is liable, because the subsidiary is insolvent

Explanation

Courts treat each company in a group as a separate legal person (Adams v Cape Industries). Shared directors and economic unity do not justify lifting the veil without more, such as fraud or sham. Option A is the common mistake of treating a group as one entity in law.

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