Corporate groups and due diligence: rethinking liability in European company law

Abstract

This paper examines how mandatory due diligence obligations interact with the allocation of responsibility and liability within corporate groups in Europe. The principles of separate legal personality and limited liability continue to shield parent companies from the harms or violations of their subsidiaries, but recent legislation in France, Germany, and at EU level introduces preventive due diligence obligations that require parent companies to identify and manage risks across their own operations, as well as those of their subsidiaries and value chains. These obligations do not disregard the separate legal personality of each company or create new forms of liability within corporate groups, but they influence its scope by defining the standard of responsible conduct expected of parent companies. In this way, due diligence establishes a link between responsibility and liability by connecting due diligence obligations to the capacity to control and oversee risk, without changing the existing framework of company law. The paper argues that while this development signals a better reflection of how corporate groups operate in practice, whether it will lead to a more coherent understanding of group liability within the legal framework in the Europe is yet to be seen.