Introduction

Groups of companies have become increasingly common, and may come into existence as the result of mergers, takeovers and the acquisition of controlling shareholdings. Groups of companies may also be made use of where a large company wishes the different businesses carried on by it to be managed by different companies, in which case each company will normally only be liable for its own transactions. Research, investments, sales and marketing activities are sometimes carried on by subsidiaries. Both large companies, and medium-sized and small companies, sometimes make use of group structures.

The present chapter will be primarily concerned with vertical groups which have a single controlling company which is the controlling company of the various subsidiaries. Horizontal groups occur where legally separate enterprises are subject to common direction, and none of such enterprises controls the others. They usually come about as the result of contractual arrangements, or provisions in the articles of the relevant companies. The existence of a group of companies gives rise to many problems, which arise largely because the interests of the parent company and its creditors, shareholders and employees may be different from those of individual subsidiaries. The question arises whether the interests of the subsidiary may be subordinated by those who manage it to those of the controlling company in any circumstances.