Clifford Chance

Enviroco Supreme Court Decision on Section 736 CA 1985

18 April 2011

In Farstad Supply A/S v Enviroco Ltd [2011] UKSC 16, the Supreme Court upheld the decision of the Court of Appeal that a subsidiary ceased to be a subsidiary of its holding company when that holding company charged its shares to a bank which registered them in the name of a nominee – even though the holding company still controlled the subsidiary for all practical purposes. Might a company which has been de-grouped in this way become a subsidiary of the mortgagee or custodian? The answer is no, although in certain limited cases the decision may affect the composition of a borrower group under a facility agreement. Whilst then of limited application, this case is worth having in mind when structuring transactions.

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