WHAT IF MY EMPLOYER GOES BANKRUPT DURING MY LEGAL CLAIM?

 

CAN I SUE THE PARENT COMPANY INSTEAD?

 

When an employer faces financial trouble or winds up, employees often look to the “bigger” parent company or sister companies to satisfy their claims for unpaid wages or unfair dismissal.

 

Many employees wonder:

“Since my boss’s company is bankrupt, can I just sue the holding company that owns them?”

“They share the same directors and office—aren’t they basically the same thing?”

 

And many holding companies fear:

“Will we be held liable for the debts of our subsidiaries just because we are in the same group?”

 

However, the Court of Appeal has recently reinforced the “Sanctity of the Doctrine of Separate Legal Personality.” Accepting that while the Industrial Court acts on “equity and good conscience,” it cannot simply ignore company law to ensure an employee gets paid by a non-employer.

 

CASE STUDY: HUBLINE BHD v. INTAN WAZLIN AB WAHAB & ANOTHER APPEAL [2025] 4 ILR 211

 

In this case, 36 retrenched workers sued their employer, Hub Shipping. When the company went into liquidation, the workers tried to swap the employer for its parent company, Hubline Berhad, and add a sister company, Highline Shipping, to the case.

They argued a “nexus” existed because the companies shared the same directors, shareholders, and registered addresses. They argued that without this change, any court award in their favour would be a useless “paper judgment.”

The Court of Appeal rejected this “expansive” approach. It held that:

• Distinct Entities: Parent and subsidiary companies are separate legal persons. Sharing a director or an office is a common corporate practice and does not make them one entity.
• The Test for Joinder: You can only pull a third party into a case if they had a direct role in the dispute (the dismissal). It is not enough that they are simply “connected” to the employer.
• No “Backdoor” Liability: Section 29(a) of the Industrial Relations Act (which allows adding parties) is not a “backdoor” to ignore the corporate veil just because the real employer is insolvent.

The court quashed the joinder, effectively protecting the parent company from the subsidiary’s employment liabilities.

 

WHEN CAN YOU SUE A PARENT COMPANY?

 

Pulling a parent company into an employment dispute is an “exceptional” move. To succeed, an employee must usually prove:

• Fraud or Sham: The company structure was used specifically to hide from legal obligations or to commit fraud.
• Legal Responsibility: The parent company was actually the one that directed or carried out the termination.
• Credible Grounds: Mere “interests of justice” or the fact that the employer is broke is not enough to pierce the corporate veil.

 

FOR EMPLOYEES: KNOW YOUR TARGET

 

• Identify the Real Employer: Check your contract and salary slips. Your claim is primarily against that specific legal entity.
• Proof of Debt: If your employer goes bankrupt, your primary legal route is often to file a “Proof of Debt” with the Liquidator.
• Don’t Rely on “Nexus”: Simply showing the companies are related is no longer a low-threshold “guarantee” to join them to your suit.

 

FOR EMPLOYERS: MAINTAIN CORPORATE BOUNDARIES

 

• Respect Separateness: Ensure subsidiaries manage their own HR and termination processes to avoid parent-company exposure.
• Avoid Overlap in Disputes: Parent companies should not involve themselves directly in the dismissal of a subsidiary’s staff unless they are prepared to be named in the suit.

 

OUR VIEW

 

The key takeaways from the Hubline decision are:

 

• A company is a legal person distinct from its shareholders, directors, or parent entities; this is the cornerstone principle of company law.

 

• The Industrial Court cannot ignore the principle of separate legal personality to impose liability on a non-employer company (like a parent company) simply because the actual employer is insolvent.

 

• To join a third party to a suit under Section 29(a) of the IRA, there must be a reasonable factual or legal nexus between that party and the dispute itself, not just a connection to the employer.

 

• Lifting the corporate veil is only justified in exceptional cases involving fraud, sham structures, or the misuse of the company structure to avoid liability.

 

In a nutshell, the Hubline decision is a “doctrinal reset.” It stops the trend of “dragging” holding companies into court just because they have deeper pockets than their failing subsidiaries. While this may seem harsh for employees, it provides vital legal certainty for businesses and investors. This decision reaffirms the basic principle that companies have separate legal entity within the Industrial law jurisprudence and that only exceptionally the veil will be pierced.