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The ripple effect: Offshore implications of the English Supreme Court decision in the Enviroco case

April 2011

In its judgment handed down on 6 April 2011 in the case of Farstad Supply A/S v Enviroco Ltd [2011] UKSC 16 (1), the English Supreme Court has unanimously upheld the Court of Appeal’s decision. The dispute concerned the issue of whether a company, whose parent company had transferred the title to its controlling shares in the company by way of security to a lender, remained a subsidiary of the parent company for the purposes of Section 736 of the UK Companies Act 1985 (“CA 1985”).

Overturning the previous High Court decision, the Court of Appeal had ruled in 2009 that the parent company was no longer a member of the underlying company and therefore that the underlying company was no longer its “subsidiary”. This was despite the fact that the former parent company still controlled its former subsidiary for all practical purposes. In dismissing the appeal, the Supreme Court took a literal interpretation of what it accepted may have been an unintended loophole given the highly unusual circumstances of the case.

By analogy, this construction of Section 736 of the CA 1985 may also have implications for the laws of offshore jurisdictions whose company law is derived from that of the UK. This article contains an analysis of the impact (if any) of the ruling on the laws of Bermuda, the British Virgin Islands, the Cayman Islands and Cyprus.

 

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The ripple effect: Offshore implications of the English Supreme Court decision in the Enviroco case

 

(1) Enviroco Ltd v Farstad Supply A/S [2009] EWCA Civ 1399

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