Children should be supervised by a parent at all times

Whilst many people will be familiar with seeing the above warning in many public places from playgrounds to the baggage claim conveyor belt at the airport, you might not expect to see the above warning in relation to a parent company and its subsidiaries.

Many companies may feel false comfort in the general rule that parent companies are seen as separate to their subsidiaries in the eyes of the law and that a corporate barrier protects a parent company for the acts of its subsidiaries.

However, companies will be wrong to think that they can rely on this comfort blanket anymore (although they might be hoping it will be replaced with an energy saving electric blanket instead).

The Courts have found that in certain circumstances a parent companies may be liable for the acts of its subsidiaries.

In a Supreme Court decision from 2021, the Court overturned a ruling by the Court of Appeal and ruled that Shell PLC (a UK based company) could be held liable for the acts of its Nigerian subsidiary, Shell Petroleum Development Company of Nigeria (SPDC) [Okpabi v Royal Dutch Shell Plc [2021] UKSC 3].

And the matter has not ended there for Shell.

It was reported earlier this week that Shell PLC have been landed with a further damages claim in the High Court by over 11,000 Nigerians of both the Ogale and Bille communities relating to environmental damage caused overseas.

The news of the claim comes just hours before it was announced that Shell had made annual profits of c.$40bn in 2022, whilst many struggle with the cost-of-living crisis.

It will be interesting to see how the case progresses in the coming months.

In the meantime, the above warning should not be disregarded.

The precedent set by the Supreme Court means that companies will now (more than ever) need to think carefully about how their group structure is formed and operated in practice to avoid being held liable for the actions and omissions of its subsidiaries.

From a company law perspective, directors should also consider the commercial benefit of decisions taken on behalf of group companies (for example, a subsidiary entering a guarantee in support of a parent company) and whether the decision is in the best interests of that particular company and its shareholders.

Directors who fail to heed this may be in breach of their director duties under the Companies Act 2006. The consequences of breaching these duties can include disqualification as a director.

Our Corporate and Commercial team can discuss these options with you. Further, our Dispute Resolution team at IBB can advise you on any commercial disputes and, our Corporate Restructuring and Insolvency team can provide advice on business recovery where needed.