I think I should say a few general words about section 118 to try to put it into context because it is, perhaps, a bit more difficult to follow if you do not have the context. We are all aware of situations that can or do arise with groups of companies whereby the separate legal identity of each member of the group is really only a facade, with the various group companies being run by the same people, effectively, as one company. The courts have, in recent years, shown an increasing willingness to lift the veil of separate legal identity in such circumstances and all we are really doing here is setting this within a statutory framework. Section 118, therefore, will enable the court, on the application of the liquidator or a creditor or contributory of any company that is being wound up, to order that any related company should pay to the liquidator an amount equivalent to the whole or part of all or any of the debts provable in the winding-up.
Let me say, however, this will not lead to any automatic stripping away of the separate legal identity of related companies. On the contrary, it is clear from the section that the mere fact that the companies are related will not be a ground for an application under the section. The power of the court here will be discretionary, first, whether to make a related company liable in the first place and, secondly, the extent to which it should be made liable. The basic test that the court will apply is the familiar just and equitable one. Subsection (2) follows on from this and gives guidelines for the court to follow in this respect, while subsections (3) and (4) specify various situations where the court cannot make an order.
For the purposes of the present discussion I would focus on subsection (2) in particular, which requires the court to take into account the extent to which the related company took part in the management of the company and the conduct of the related company to the creditors of the company actually being wound up. By tabling amendment No. 164, Deputies Bruton and Barrett effectively want to do more than just require the court to take this into account, they want to positively limit the power of the court to make an order to an amount proportionate to the influence of the related company on the company being wound up. I would suggest to Deputies that the existing wording gives the court the maximum flexibility in regard to the appropriate level of sanction to apply when it has heard all the facts in any given case, but at the same time the parameters are defined in the subsections I have just mentioned.
In these circumstances I am satisfied that it is preferable to leave the section worded as it is, than adopt the proposed wording of the amendment which would have an unnecessarily limiting effect on the freedom of the court to consider each case on its individual merits and facts. Accordingly, my suggestion would be that the amendment would not be proceeded with.