Employment contracts often use the statutory definition of a "subsidiary" contained in the Companies Acts to identify the wider group of companies to whom the employee owes his duties. For example, confidentiality obligations and restrictive covenants will often be drafted so as to refer to both the company for whom the employee is working as well as its holding or subsidiary companies. Employee Share Schemes and Employee Benefit Trusts also frequently use the definition of subsidiary in order to set their eligibility criteria so as to cover the entire group's workforce.
The Court of Appeal has recently held that the granting by a holding company of a pledge (security) over the shares in its subsidiary and the registration of the bank as the holder of those shares caused the subsidiary to cease to be a subsidiary of its holding company.
While the facts of this case were somewhat unusual and would not apply in the majority of situations, the consequences of the decision are potentially very significant for those companies to which it applies. In most cases it will be straightforward to establish whether or not a company that has, or plans to, pledge a subsidiary's shares is likely to be affected by this decision.