QUESTION 3 [Total = 15 marks]

Light Pty Ltd is one of the companies in the Heavy Industries group of companies. Light is a subsidiary of Heavy Ltd, the holding company of the group. Heavy ownsmost of the groups assets. Light has two directors: a managing director and a chieffinancial officer. While the group as a whole has been doing well, Light has beenhaving financial difficulties. Lights financial crisis came to a head when it wasrevealed that it is likely to become liable for extensive damages as a result ofenvironmental damage it has committed. This damage has been caused by Lightsnegligent management of certain chemicals used in the manufacturing process, which has resulted in some of those chemicals finding their way into nearby waterways. Light is not adequately insured against the potential claims. The bad publicity Light has suffered has led to Light becoming insolvent and its creditors (i.e., those who have supplied goods and services to Light) have commenced proceedings to wind up Light.

(a) Advise Heavy Ltd whether it is likely to be liable for:

(i) Lights debts? and (ii) Environmental damage caused by Lights negligence?