Q - When is a subsidiary not a subsidiary?
A – When its parent company has pledged its
shares to a third party by way of security.
It has long been accepted that where a holding company
("HC") pledges the shares it owns in a subsidiary company
("SC") to a third party by way of security for some other
obligation, unless and until action is taken to enforce that
security, SC remains a subsidiary of HC within the meaning of
sections 736 and 736A of the Companies Act 1985 (now section 1159
of the Companies Act 2006). Or so we thought....
In Enviroco Ltd v Farstad Supply A/S the Court of Appeal has
held that, as a result of a holding company's pledge to a bank
of shares in its subsidiary and the registration of the shares in
the name of the bank's nominee as security, the subsidiary
ceased to be a subsidiary of the holding company within the meaning
of sections 736 and 736A of the Companies Act 1985.
