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Buachaill, Barrister
Category: Law
Satisfied Customers: 10955
Experience:  Barrister 17 years experience
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We have a dormant company which has been dormant 20

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we have a dormant company which has been dormant for over 20 years. It has a share capital of £4500 which is held by another company so the dormant is a subsidiary as such. It has two directors who are the directors of the parent company. Can court action be instigated against the dormant which has no assets or anything other than the share capital or would the action be automatically transferred to the parent company and its directors. If we ignore the court proceedings against the old dormant which we consider to be a scatter gun approach, what would happen?
1. Can you better explain the situation. Who is suing who is suing who? For what cause of action? Is this dormant company on the register at Companies House?
Customer: replied 2 years ago.

Yes the company is on the register at Companies House. Action is being taken against the dormant by a supposed former employee who said he worked for the company end of the fifties beginning of the sixties who claims to be ill due to the possible use of what would have been classed as low density asbestos. There are no employee records going back that far and it would appear that employee liability insurance was not in place as at that time it was not a requirement

2. Yes, legal action can be instituted against the dormant company. There is no rule of law that a company on the Companies register cannot be sued, just because it is not currently trading. So here, the former employee is perfectly entitled to bring legal action against the dormant company. Be aware that in law, the dormant company would be considered to have assets to the extent of its £4500 share capital. It makes no difference that this money is held by a parent or other company, as it is still the dormant company's asset. Secondly, there is no such thing as the legal action being transferred to the parent or holding company. A party is free to sue who he wants. Be aware that there may be advantageous that the dormant company is sued, as it could be put into liquidation should the legal action succeed and damages be payable. Thirdly, I would not advise that you ignore the legal proceedings against the dormant company as this will mean that a default judgment is entered against it, unless you then intend to put it into liquidation. This is a litigation choice and should be considered in the context of an overall litigation strategy.
Customer: replied 2 years ago.
Thank you. Does this mean that if default judgement is entered against the dormant the most it would have to pay would be £4500? Would there be any come back against the parent company and/or would the former employee of the dormant be able to proceed against the parent as the trade of the dormant is now part of the parent. The dormant company was kept to protect the name.
3. Yes, the extent of the dormant company's liability would be the extent of its assets. These may or may not be solely its share capital. It may have other assets. Secondly, the former employee would not be able to sue the parent company merely because he has a cause of action against the dormant company. Thirdly, you should consider transferring rights in the name of the dormant company to another company and trademarking them. This will safeguard the name in the event of liquidation of the dormant company.
Customer: replied 2 years ago.
Thank you. Would there still be a case in law when no one at that time was aware of the dangers of asbestos and I think the Act covering the use of asbestos did not come in until 1969. Does this mean that the dormant is still liable. There are no other assets other than the share capital.
4. Liability in law does not depend upon knowledge. Claims in relation to asbestos have succeeded even though there was no knowledge in the 50s & 60s about the harm it caused. The dormant company would still be liable if the case is asbestos related. Please RATE the Answer as this is necessary so that your Expert gets part of the funds you have deposited with the website.
Customer: replied 2 years ago.
Thank you. Could the present Directors be held liable in anyway even though they were not involved in the Dormant company at the time or the Parent come to that.
5. No, the present directors cannot be held personally liable. This is because they were in no way liable and also, because you cannot be held personally liable for something you were unaware of, such as potential liability to asbestos.
Customer: replied 2 years ago.
Thank you. Do any Court proceedings have to be issued to the Dormant Company's registered office and if they are not can they be returned unanswered to the Court other than stating it is not the registered office, then await for them to be re- issued to the correct address.
6. It is a rule of law, that a company must be served at its registered address. This is the address listed in Companies House as its registered address. So here it is the Dormant Company's registered address at which solicitors for the claimant must serve the document. So any proceedings sent to the wrong address can be returned. You can then await for service at the correct address.
Buachaill and other Law Specialists are ready to help you
Customer: replied 2 years ago.
MrCustomer sir you have been a great help in answering points which we were unsure of. Thank you.
Kind regards,
Bernard Briggs
Customer: replied 2 years ago.
One further question regarding the above. Would there be any claim on the Parent company as it took on the trade and existing employees who were employed at that time of the subsidiary /dormant company.
7. The parent company can only be made liable for the liabilities of the subsidiary company if it accepted the liabilities attaching to the transfer of the workers. Accordingly, if there was a transfer of the business of the dormant company, then the parent would take on the liabilities as well. However, if there merely was a novation of the employment contracts, then the parent company will not be liable. Here, I would suggest that you look at the legal method used when the Parent company took on the trade and existing employees previously employed by the subsidiary/dormant company. If there was merely a transfer of the employment contract and nothing more, then the Parent did not take on any pre-existing liabilities. However, if there was a transfer of the business, then the parent took on the liabilities as well.