Circumventing veil piercing: possible delictual ability of a holding company to a creditor of its insolvent subsidiary
Date
2013
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Juta
Abstract
A holding company often issues a letter of comfort to a creditor of its subsidiary company. The
subsidiary company often then defaults on its obligations to that creditor. The courts generally have
held that a letter of comfort does not create binding contractual obligations between the holding
company and the creditor. This article investigates whether the creditor could hold the holding
company liable in delict for the losses that the creditor suffered due to the default of the contractual
obligations by the subsidiary company to that creditor. The article specifically considers the element
of wrongfulness and whether there could be a legal duty on the holding company not to cause pure
economic loss to the creditor of its subsidiary in circumstances where the holding company issued a
letter of comfort to the creditor. This article investigates the requirements of a legal duty in cases of
pure economic loss as well as the nature of a letter of comfort. The article concludes that a legal duty
could be placed on a holding company not to cause pure economic loss to the creditor of its subsidiary
depending on the wording of the letter of comfort and without sacrificing the principle of separate
juristic personality that exist between the holding company and subsidiary company.
Description
CITATION: Stevens, Richard. 2013. Circumventing veil piercing: possible delictual ability of a holding company to a creditor of its insolvent subsidiary. Stellenbosch Law Review, (1): 93-106.
Keywords
Liability (Law) -- South Africa, Companies -- Law and legislation -- South Africa, South Africa -- Companies Act, 2008, Contractual obligations, Insolvency law -- South Africa
Citation
Stellenbosch Law Review