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Contracting with a Company within a Group Structure


When contracting with an entity within a group structure of several companies, it is important to understand that each company within the group is a separate legal entity and not responsible for the actions (including accrual of debts) of the other companies in the group. In some circumstances, you may enter into a contract with one entity within the group but it is not the entity that owns the asset you will be dealing with.

You should take steps to ensure you are protected and there are feasible avenues for recovery in the event the entity you have contracted with becomes insolvent or does not perform its obligations under the contract. Some steps to reduce your risk in these transactions include:

  1. Understand which entity you are contracting with (record their ABN or ACN in the agreement).
  2. Investigate whether the company you are contracting with within the group is the entity that actually:
    1. has the capacity to perform the contract; and
    2. requires the relevant rights being secured.

Consider whether other companies within the group need to also be party to the agreement: (seek a parent company guarantees where appropriate).