Can a creditor hold a parent company liable when its subsidiary cannot pay?

You obtain a judgment against a company, but it cannot pay. Its accounts suggest that money was owed to it by its parent company, and those amounts have since been written off. Can you require the parent company to settle your judgment?

That requires a legal basis for liability against the parent itself. An unpaid judgment against the subsidiary does not, by itself, establish that basis.

In Universal Health Care (R&D) Sdn Bhd v Ramli Md Saleh & Ors [2026] 6 MLRA 258, the Federal Court dismissed a creditor’s appeal seeking to hold the subsidiary’s former parent company liable for fraudulent trading and conspiracy to defraud. The decision, dated 29 July 2026, turned on the underlying transactions and the failure to prove dishonesty.

What happened?

Universal Health Care had entered into a tenancy agreement with Pandan Indah Medical Management Sdn Bhd, known as PIMM, to operate a hospital. A dispute following termination of the tenancy resulted in a consent judgment in 2009. Damages were subsequently assessed, but the judgment debt remained unpaid. PIMM was wound up in 2014.

The creditor then pursued PIMM’s former directors and Talam Transform Berhad, which had been PIMM’s parent company. By the Federal Court stage, the appeal proceeded against Talam alone.

The creditor alleged that an exercise involving the assignment, write-off and waiver of intercompany balances had removed assets that PIMM could otherwise have used to pay its judgment debt. It relied on fraudulent trading under section 304 of the Companies Act 1965, now addressed by section 540 of the Companies Act 2016, and conspiracy to defraud.

Why did the claim against the parent company fail?

The central question was whether the disputed balances represented legally enforceable debts owed to PIMM in the first place.

The property involved, Wisma Talam, had formed part of a Sukuk Al-Ijarah financing arrangement. Under the transaction documents, its beneficial ownership had passed into the structure for the benefit of the Sukuk holders. PIMM retained its registered interest as a bare trustee.

When the property was later sold, the proceeds were applied towards redemption of the Sukuk through the agreed payment arrangements. They did not belong to PIMM, and there was no surplus available to it after redemption.

Although the accounts recorded intercompany advances, the Court found that the disputed entries did not establish legally enforceable debts arising from those proceeds. The creditor’s argument that real assets had been fraudulently removed through the write-off therefore failed.

Are audited accounts enough to prove a debt?

Audited accounts are relevant evidence, but they are not conclusive proof of every legal obligation recorded in them.

The Federal Court reaffirmed that section 34 of the Evidence Act 1950 does not permit liability to be established through accounting entries alone. The underlying agreements and transactions must also be examined.

Here, the Sukuk documents explained ownership of the property and the destination of the sale proceeds. The creditor’s reliance on the accounts did not overcome that evidence.

The Court also accepted that the internal settlement exercise had been contemplated before the consent judgment. Dishonesty was not established, and the conspiracy claim lacked the necessary particulars in the pleadings.

Does this protect every parent company or debt write-off?

No. The Court expressly recognised that writing off debts could, in appropriate circumstances, amount to fraudulent trading. The claim failed on the particular transactions and evidence before it.

Nor did the dismissal amount to an endorsement of every aspect of the group’s governance. The Court criticised the appointment of directors who could not independently discharge their responsibilities. That criticism was distinct from a finding of fraudulent trading, which had not been proved.

What should creditors and businesses take note of?

Identify the legal basis for pursuing each company. Check the name on your contract and whether the parent gave a guarantee or made its own enforceable commitment. Membership of the same corporate group does not answer those questions.

If you suspect assets were diverted, establish what the debtor actually owned, where the money went and who authorised the transaction. Obtain the supporting agreements and payment records through lawful channels. An entry labelled “amount owing by holding company” is a starting point for investigation, rather than a complete case.

Address recovery promptly after obtaining judgment. Consider the debtor’s assets and financial position, and obtain advice on the appropriate enforcement or insolvency steps. Starting a separate claim against another group company requires evidence supporting that company’s liability.

For businesses managing intercompany balances, retain the agreements, resolutions and records explaining those balances and any subsequent restructuring. Those documents may become decisive when a creditor challenges what happened to the money.

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