Case 1) Peter Ltd establishes Pan Ltd for the sole purpose of developing a new product to be manufactured and marketed by Peter Ltd. Peter Ltd engages Mr. Hook to lead the team to develop the new product. Mr. Hook is named Managing Director of Pan Ltd at an annual salary of $100 000, $10 000 of which is advanced to Mr. Hook by Pan Ltd at the time Pan Ltd is established. Mr. Hook invests $10 000 in the project and receives all of Pan Limited's initial issue of 10 shares of voting ordinary shares.

Peter Ltd transfers $500 000 to Pan Ltd in exchange for 7%, 10-year debentures convertible at any time into 500 shares of Pan Ltd voting ordinary shares. Pan Ltd has enough shares authorised to fulfil its obligation if Peter Ltd converts its debentures into voting ordinary shares.

The constitution of Pan Ltd provides certain powers for the holders of voting common shares and the holders of securities convertible into voting ordinary shares that require a majority of each class voting separately. These include:

1. the power to amend the corporate purpose of Pan Ltd, and
2. the power to authorise and issue voting shares of securities convertible into voting shares.

At the time Pan Ltd is established, there are no known economic legal impediments to Peter Ltd converting the debt.

Required:

Discuss whether Pan Ltd is a subsidiary of Peter Ltd.?? (9 marks)