Atco Controls Pty Ltd (in liq) v Newtronics Pty Ltd (recs & mgrs apptd) (in liq)

[2009] VSCA 238

Victorian Court of Appeal

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Interrogate

Catchwords

1. Contract
2. › Formation
3. › Implied agreement
4. › Inference from conduct
5. › Parent company undertaking to provide financial support to subsidiary
6. › Whether sufficient basis to infer legally binding agreement
7. › Whether letters of support to auditors constituted or confirmed binding contract
1. Contract
2. › Formation
3. › Intention to create legal relations
4. › Commercial arrangements between parent and subsidiary companies
5. › Whether existence of formal security inconsistent with intention to create binding support agreement
6. › Whether non-binding letters of comfort sufficient basis for directors' declarations
1. Contract
2. › Formation
3. › Consideration
4. › Whether continued trading by subsidiary constituted valuable consideration for parent's undertaking of support
5. › Whether request to continue trading could be implied
6. › Reciprocal conventional inducement
1. Words and Phrases
2. › 'Current trading obligations'
3. › Whether judgment debt for product liability constituted current trading obligation
4. › Ordinary commercial acceptation

Quick Take

Letters of support provided by a parent company to a subsidiary's auditors, even when relied upon for going concern declarations, do not without more give rise to a binding legal agreement to provide financial support. The existence of formal security arrangements (such as a debenture) over the subsidiary's assets is a strong indicator against an intention to create a legally binding support obligation. Continued trading by a subsidiary does not constitute valuable consideration for a parent's undertaking of support unless the parent requested the subsidiary to continue trading as the price of the undertaking. The expression 'current trading obligations' in a letter of support does not extend to contingent liabilities or extraordinary items such as a product liability judgment debt.