DriveTech plc is engaged in the business of designing and manufacturing high-performance

racing cars. It wishes to build a racetrack upon which it can test its prototype models, and to

that end, it creates a subsidiary company called Track Build Ltd. A suitable piece of land on

which to build the testing track is located and Track Build purchases it using capital borrowed

from Drive Tech. However, shortly thereafter, the directors of Track Build (all of whom are

also directors of Drive Tech) discover that the land does not have planning permission and so

TrackBuild agrees to sell the land to BuildCorp Ltd, a local construction company. However,

several days later, a member of the local council indicates to the directors of Track Build that,

should it apply for planning permission, it would certainly be granted. Accordingly, before sale

of the land to BuildCorp is completed, Track Build transfers ownership of the land to

DriveTech, and argues that the contract with BuildCorp is no longer valid as it no longer owns

the land. TrackBuild successfully applies for planning permission.

DriveTech decides that it wishes to expand into the consumer car market and, to this end, it

created another subsidiary called GearShift Ltd. The articles of GearShift provide that only

directors nominated by DriveTech may sit on its board and, accordingly, all the directors of

GearShift are either persons nominated by DriveTech, or are actually also directors of

DriveTech. GearShift engages in research and development on a new car and this is funded

exclusively by issuing shares that are purchased by DriveTech (with the result that GearShift

becomes a whollyowned subsidiary). However, more capital is required, but the directors of

DriveTech refuse to provide GearShift with any more capital and instead order the board of

GearShift to cut back on its research and development. Accordingly, the directors of GearShift

agree to cut back on research into the car's safety features. GearShift completes designing a

new car and it is manufactured and sold to the public. However, the car turns out to be unsafe

due to a defect in the car's brakes and numerous accidents occur. Those who suffered injury

and loss due to the defective cars initiate proceedings against GearShift but, by this time,

GearShift has entered insolvent liquidation, and has insufficient funds to meet any liability.

REQUIRED

Advise the parties above of any potential liability they might face.