No assumptions here...but worth reading when not drinking the koolade
Just sharing some good info with those that may want to do some homework
A subsidiary is a legal entity that issues its own stock and is a separate and distinct operating business that is owned by a parent company. The stock of the subsidiary is an asset on the balance sheet of the parent company. The subsidiary has its own bank accounts, operating capital and ownership of assets, except for the stock issued to the parent company. The purpose of a subsidiary/parent business structure is to limit the liability and legal exposure one company has if either company fails.
Defining Insolvency
The effects on a subsidiary of its parent company's insolvency depends on the level of insolvency. There are two types of insolvency, both of which involve a company being unable to meet its financial obligations. One is known as balance-sheet insolvency, when liabilities exceed assets. The second is cash-flow based, which occurs when the company cannot pay obligations as they become due. This can lead to legal insolvency proceedings, by which a court determines the liquidation process of a company's assets in order to pay outstanding debts.
Subsidiaries Under a Parent Company Bankruptcy
Bankruptcy is a petition filed by a company to a federal court, requesting legal protection from creditors when the company is developing plans to pay its creditors. If granted bankruptcy protection, creditors are prevented from collecting money from the company while the company works on a plan to emerge from bankruptcy. The plan usually involves negotiation with creditors on ways to restructure loans and reduce amounts owed. The court must accept the plan once all parties have agreed to the terms. This legal strategy allows the subsidiary and parent companies to continue operations.
The Subsidiary Under Dissolution Proceedings
Insolvency does not necessarily mean the company is out of business, as long as it takes action to pay creditors or seek legal protection under bankruptcy laws. However, should the company fail to take action to protect itself from dissolution, it will result in the selling of the stock of a subsidiary to raise capital. This scenario is predicated on the subsidiary's stock being an asset on the balance sheet of the parent company.
Subsidiaries Versus Parent Companies During Insolvency
The Insolvency Act of 1986 permits the court to lift the corporate "veil" (legal protection of shareholders from liability) if it can be proven that a parent company actively participated in the management of the subsidiary, effectively acting as a "shadow director" of the subsidiary. By piercing the veil, the subsidiary may be deemed an extension of the parent company, because the board and management of the subsidiary, failed to maintain independence from the parent. This subjects the subsidiary's assets to inclusion in any legal settlement ordered by the court.
in my humble opinion
cheers
Just sharing some good info with those that may want to do some homework
A subsidiary is a legal entity that issues its own stock and is a separate and distinct operating business that is owned by a parent company. The stock of the subsidiary is an asset on the balance sheet of the parent company. The subsidiary has its own bank accounts, operating capital and ownership of assets, except for the stock issued to the parent company. The purpose of a subsidiary/parent business structure is to limit the liability and legal exposure one company has if either company fails.
Defining Insolvency
The effects on a subsidiary of its parent company's insolvency depends on the level of insolvency. There are two types of insolvency, both of which involve a company being unable to meet its financial obligations. One is known as balance-sheet insolvency, when liabilities exceed assets. The second is cash-flow based, which occurs when the company cannot pay obligations as they become due. This can lead to legal insolvency proceedings, by which a court determines the liquidation process of a company's assets in order to pay outstanding debts.
Subsidiaries Under a Parent Company Bankruptcy
Bankruptcy is a petition filed by a company to a federal court, requesting legal protection from creditors when the company is developing plans to pay its creditors. If granted bankruptcy protection, creditors are prevented from collecting money from the company while the company works on a plan to emerge from bankruptcy. The plan usually involves negotiation with creditors on ways to restructure loans and reduce amounts owed. The court must accept the plan once all parties have agreed to the terms. This legal strategy allows the subsidiary and parent companies to continue operations.
The Subsidiary Under Dissolution Proceedings
Insolvency does not necessarily mean the company is out of business, as long as it takes action to pay creditors or seek legal protection under bankruptcy laws. However, should the company fail to take action to protect itself from dissolution, it will result in the selling of the stock of a subsidiary to raise capital. This scenario is predicated on the subsidiary's stock being an asset on the balance sheet of the parent company.
Subsidiaries Versus Parent Companies During Insolvency
The Insolvency Act of 1986 permits the court to lift the corporate "veil" (legal protection of shareholders from liability) if it can be proven that a parent company actively participated in the management of the subsidiary, effectively acting as a "shadow director" of the subsidiary. By piercing the veil, the subsidiary may be deemed an extension of the parent company, because the board and management of the subsidiary, failed to maintain independence from the parent. This subjects the subsidiary's assets to inclusion in any legal settlement ordered by the court.
in my humble opinion
cheers
