Can a holding company liquidate its subsidiary to avoid paying creditors?

This article explores the judgment that the Honourable Mrs Justice Jefford (“J Jefford”), sitting in the Technology and Construction Court, found in One Hyde Park Ltd v Laing O’Rourke Construction South Ltd [2026] EWHC 155 (TCC).

The defendant disengaged from the proceedings just before the trial was due to begin, and entered liquidation. They therefore did not attend the trial. J Jefford struck out the defendant’s defence pursuant to Rule 39.3(1)(c) of the Civil Procedure Rules (“the CPR”). The claimant still had to prove its case to the court, but without contest. J Jefford went as far as to agree with the claimant’s description of the Laing O’Rourke group’s withdrawal of support from its subsidiary close to trial as “commercially amoral”.

The claimant was successful in obtaining a judgment for circa £35M in damages, against a defendant that is now insolvent

What was the dispute about?

Laing O’Rourke Construction South Limited (“LORCS”) (which is a subsidiary of Laing O’Rourke plc (“the Parent Co”)) entered into a contract with the original freeholder of One Hyde Park, in Knightsbridge (“the Property”) in 2007 (“the Main Contract”).

The Main Contract was made on the JCT Standard Form of Building Contract with Contractor’s Design (1998). The Main Contract incorporated amendments 1 to 5, and bespoke amendments, including to clauses 2 and 8.

On 8 September 2010, LORCS had entered into a Collateral Warranty with One Hyde Park Ltd (“OHP”) warranting its performance of the Main Contract.

The Property reached practical completion in 2011.

On 11 June 2014, the freehold of the Property was transferred to OHP.

Later that year, it was discovered that the chilled water pipework (“CWP”) was being corroded (severely – in some instances up to 87% of the wall thickness). The CWP was the bulk of the claim, making up £34,437,122.60 of the £35,146,225.04 quantum of damages.

Thereafter, a range of additional defects were discovered, including: multiple leaking soldered joints; failing butterfly joints in some pipework systems; and the pantograph cradle for cleaning facades was not working correctly (the latter of which, LORCS ultimately admitted liability for).

LORCS did not dispute the existence of the defects, however, LORCS put forward that the defects were due to external factors, and / or fell outside the scope of the contract in any event (save for the pantograph cradle).

OHP and LORCS began pre-action settlement discussions in 2016, which were not successful. On 23 December 2021 (10 years after practical completion), OHP filed its claim against LORCS for damages, as a consequence of the defects.

The proceedings, the withdrawal, and the trial

OHP claimed that the reason for the defects were due to LORCS’ inadequate workmanship and failure to install the required vapour‑barrier insulation, which constituted a breach of the Main Contract to deliver work:

1. of reasonable skill, care and diligence; and
2. of satisfactory quality.

In other words, LORCS breached inter alia clauses 1.1; 2.1; 2.5.1; 8.1.1; 8.1.2. and 8.1.3 of the Main Contract. Moreover, OHP claimed that the defects were a breach of the collateral warranty that LORCS had entered into in 2010. The Collateral Warranty provided that LORCS warranted:

“…[LORCS] has complied and will continue to comply with the terms of the [Main Contract]… without prejudice to the generality of the foregoing, [LORCS] further warrants to [OHP] that:
(a) all the reasonable skill, care and diligence to be expected of a properly qualified and competent architect or other appropriate designer who is experienced in preparing design in relation to works of a similar size, scope, nature, complexity and value to the Works has been and shall continue to be exercised in relation to the preparation and completion of the Contractor’s Design;
(b) all materials and goods supplied and to be supplied for incorporation into the Works are and shall be in accordance with the Contract and will be and will remain of satisfactory quality and shall be suitable in every respect for the purposes made known or reasonably capable of being inferred from the Contract;
(c) all workmanship, manufacture and fabrication shall be in accordance with the Contract;…”.

OHP originally claimed damages of circa £53.6M.

OHP and LORCS exchanged their respective experts’ reports, and submitted joint statements of technical fact.

The trial was set for 24 February 2025. However, shortly before trial, LORCS withdrew from the proceedings and did not attend the trial. It is understood that the Parent Co was funding the litigation on behalf of LORCS until LORCS withdrew. The Parent Co then placed LORCS into a creditors’ voluntary liquidation (“CVL”). LORCS’ statement of affairs shows total debts of £127,286,380.43.

OHP invited the Court to strike out the LORCS’s defence, pursuant to CPR 39(1)(c), and J Jefford obliged. Moreover, all witness evidence provided by LORCS, including its expert witness reports, were not considered by the Court, as the defendant did not call the witnesses at trial (as a natural consequence of not attending the trial, pursuant to CPR 32.5(1)).

The judgment:

As mentioned previously, the court awarded OHP just over £35M for LORCS’ breach of the Main Contract and Collateral Warranty, and J Jefford did not mince her words when describing the conduct of the Parent Co. As noted at paragraph 14 of J Jefford’s judgment, the Group Co’s “commercially amoral” decision to withdraw funding for the litigation and allow LORCS to liquidate was done (presumably) because the Group Co knew LORCS were going to be found liable, and decided to simply place LORCS into liquidation rather than risk paying the damages (notwithstanding the financial strength of the Parent Co).

OHP has an award for circa £35M, but the defendant is in liquidation. However, there are circumstances where a holding company (in these circumstances, the Parent Co) can still be liable for the debt.

Duty of care / direct tortious liability

Holding / parent companies are not generally liable for their subsidiaries’ wrongdoing . However, there are circumstances where the holding / parent company can be found liable.

Similar circumstances have been discussed in the Court of Appeal (Chandler v Cape [2012] EWCA 525) and the Supreme Court (UKSC/2018/0068). It has been found that there are four factors to consider to determine if there is a duty of care owed by a parent company to its subsidiary:

1. The businesses of the holding company and the subsidiary are in a relevant respect the same
2. The holding company had, or ought to have, specialist knowledge compared to the subsidiary
3. The holding company had knowledge of the subsidiary’s systems of work
4. The holding company knew, or ought to have foreseen, that the subsidiary was relying on it to use that superior knowledge to protect the claimant (in this matter, OHP).

On the face of it, there may be scope for the first, third, and fourth conditions to be engaged in this case. It will be interesting to monitor whether OHP seeks to pursue the Parent Co for the judgment debt on that or a similar basis.

Considerations for construction businesses:

When large contractors have a pattern of behaviour similar to the Parent Co’s decision to “pull the plug” on its subsidiary – such as in this case – it would be prudent to request a parent company guarantee from the contractor’s holding company. This would then give you a clear cause of action in contract to circumvent the hassle of recouping funds from an insolvent company on a pari passu basis (which usually means you would recover pennies to the pound of your debt, and it would take a long time to recover the same).

When you are a defendant in a trial, if you withdraw from the trial and do not attend the same, you risk your pleadings being struck out, and your witness evidence being wasted.

If you are facing a dispute or require assistance with construction contract drafting, or enforcement, our specialist construction disputes, construction project support and commercial and insolvency litigation teams are here to assist.