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A developer’s dilemma: parent company liability

Most developments are carried out by a special purpose vehicle, a company set up specifically to purchase the site and carry out the development.  One of the reasons for this is that it enables liabilities to be contained within that company. In what circumstances can that strategy fail?

The 2009 case of Ackers v Austcorp International Ltd1 highlighted the potential for parent companies to be held liable for misleading and deceptive representations made by a subsidiary company.  The subsidiary company, which was the seller under various sale contracts, through its agents, was found to have made representations to buyers about capital gains and returns on their units.  The development had been completed and the seller company wound up by the time the action was commenced.  The buyers were therefore seeking compensation from the parent company Austcorp.  Austcorp was found to be liable because, as would be the case with most developments, all of the marketing material referred to the development as an Austcorp development and bore the Austcorp logo. More…