Circumventing veil piercing: possible delictual ability of a holding company to a creditor of its insolvent subsidiary
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.
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.
Liability (Law) -- South Africa, Companies -- Law and legislation -- South Africa, South Africa -- Companies Act, 2008, Contractual obligations, Insolvency law -- South Africa
Stellenbosch Law Review