CA 2016: SUBSIDIARY AND HOLDING COMPANY

CA 2016: SUBSIDIARY AND HOLDING COMPANY

section 4 CA2016:

3 tests if subsidiary:

1. control composition of Board

2. controls  more than half of the voting power

3.  holds more than half of the issued share capital




Let us look now at the wordings of the Act:


SECTION 4 OF THE CA 2016

(1) Subject to subsection (3), a corporation shall be deemed to be a subsidiary of another corporation, but only if-

(a) the other corporation-

(i) controls the composition of the board of directors of the corporation;

[comment: see s.4(2) below] 

(ii) controls more than half of the voting power of the corporation; or

[comment: voting power here alludes to voting at general meeting of the company.]  

(iii) holds more than half of the issued share capital of the corporation, excluding any part of the share capital which consists of preference shares; or

[comment: issued share capital and not inccluding pref share]

(b) the corporation is a subsidiary of any corporation which is that other corporation's subsidiary.

[comment: subsidiary of a subsidiary is also considered as a subsidiary of the ultimate holding company at the top of the chain]

(2) For the purposes of subparagraph (1)(a)(i), the composition of a corporation's board of directors shall be deemed to be controlled by another corporation if that other corporation can appoint or remove all or a majority of the directors and for the purposes of this provision, the holding company shall be deemed to have the power to make such an appointment if-

(a) a person cannot be appointed as a director without the exercise of such a power in his favour by that other corporation; or

(b) a person's appointment as a director follows necessarily from his being a director or other officer of that other corporation.

[ Comment: Meaning of control composition of the Board :

1* can appoint or remove all or a majority of the directors /

2* need the consent of the other corp to appoint/

3* director of holding is also automatic director of the subsid ]

(3) In determining whether one corporation is a subsidiary of another corporation-

(a) any shares held or power exercisable by that other corporation in a fiduciary capacity shall be treated as not held or exercisable by it;

[comment: if shares held on trust does not count to determine if have voting power]

(b) subject to paragraphs (c) and (d), any shares held or power exercisable-

(i) by any person as a nominee for that other corporation, except where that other corporation is concerned only in a fiduciary capacity; or

(ii) by, or by a nominee for, a subsidiary of that other corporation, not being a subsidiary which is concerned only in a fiduciary capacity,

shall be treated as held or exercisable by that other corporation;

[comment: if shares held as nominee can count]

(c) any shares held or power exercisable by any person by virtue of the provisions of any debentures of the corporation or of a trust deed for securing any issue of such debentures shall be disregarded; and

(d) any shares held or power exercisable by, or by a nominee for, that other corporation or its subsidiary, not being held or exercisable as mentioned in paragraph (c), shall be treated as not held or exercisable by that other corporation if the ordinary business of that other corporation or its subsidiary, as the case may be, includes the lending of money and the shares are held or power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business.

(4) A reference in this Act to the holding company of a company or other corporation shall be read as a reference to a corporation of which that company or corporation is a subsidiary.