Attribution of knowledge within a group
An interesting article was published recently in the journal ‘Ondernemingsrecht’. The author examines whether the knowledge held by one company can be attributed to another company if they form part of the same group.[1]
We regularly advise clients on the organization and reorganization of corporate structures. Often the tax aspects are the determining factor, but control, liability and risk management also play an important role.
The structure of a group must support and protect its business. Often business activities that are carried out more or less autonomously are placed in separate operating companies. High-risk projects are usually carried out from within a separate company so as not to form a risk for the rest of the group. Above these various operating companies, we usually find one or more holding companies. This allows the business to spread its risks and safeguard its existence for the long term.
If the knowledge of one of the group companies can be attributed to another group company, the protective effect of the carefully chosen structure can be broken.
The author of the article in question above takes the view that if parts of a group in fact form a single organization with respect to certain activities, one company’s knowledge can be attributed to the other company, in which case it is important how these two companies are structured in relation to each other. A subsidiary’s knowledge can generally be attributed more readily to a parent company than the other way around. Attributing a parent company’s knowledge to a subsidiary is less likely, as is the attribution of knowledge between sister companies. Much depends on the actual situation and all circumstances of the case need to be considered.
Generally speaking, a court will be very cautious about attributing knowledge. Even so, it is wise to devote the necessary attention to this subject when structuring and organizing a group.
If the question arises whether the knowledge held by one company must be assumed to be known at another company, all the activities and omissions of the entities involved will be looked at. Should information that is available elsewhere in the group have been used by officers of the company concerned, or should the company that possessed the information have done more to share the information?
In many businesses, it is desirable for information to be exchanged freely and without restrictions within the group. In that case, it is wise to ensure a proper mutual exchange of information. Processes must be set up in such a way that important information can be readily accessed or shared. If all the officers possess the right information, the question will not so readily arise as to whether information from one entity must be assumed to be known by another, because that knowledge is simply available.
If entities within a group, however, operate more or less independently and there is little or no need to share information, one can of course choose to organize internal processes in such a way that information remains behind closed doors as much as possible. Officers will have to consciously manage this and not give the impression to the outside world that information is freely shared. Attribution of information will then in principle only take place if the other party can rely on the fact that certain information was shared within the group. The other party must have a specific reason to do so.
The article mentioned above deals with this problem in more detail. As is so often the case, practice is more complicated than theory and the outcome of a specific case cannot always be predicted. The above does however give you something to think about when structuring your organization. If you would like to share your thoughts with us on this topic or would like some more information, we warmly invite you to contact us.
[1]Ondernemingsrecht 2019/60 Toerekening van kennis van groepsvennootschappen(Attribution of knowledge in group companies), Mr. B.M. Katan, 26-03-2019