Reference no: EM131029284

Corporation law case 

Cape Asbestos Ltd (CAL) has been engaged in the mining of asbestos and manufacture of asbestos products for many years. During the 1960s it became apparent that exposure to asbestos dust could cause lung cancer and other lung diseases which were often fatal. The nature of asbestos-related lung diseases was such that the disease often appeared many years after exposure. In many cases, the disease became apparent more than 30 years later. Asbestos products were mainly used in building products such as asbestos cement sheeting and roofing and in motor vehicle brake linings. Because of these dangers, the production of asbestos products declined from the 1980s and CAL developed several successful building products which did not contain asbestos. These products were particularly successful in the US and European markets with the result that by the 1990s, CAL made most of its profits in these countries.

CAL sought to raise capital in the US but such attempts failed because of investor fears that asbestos-related tort liabilities, both actual and potential, introduced considerable uncertainty in CAL's future prospects. In an attempt to overcome this problem, a restructuring occurred in 2010, the effect of which was to create a new parent company, Cape Asbestos International Ltd (CAIL) which carried on the production and distribution of building products. Most assets within the group were transferred to CAIL. CAL became a subsidiary which remained liable for asbestos claims. To meet these claims, which were expected to rise over many years, CAL was left with $250 million. By 2015, it was clear that claims would far exceed the assets of CAL. An actuarial report indicated that claims over the next decade would amount to around $3 billion.

Discuss whether the asbestos-related tort victims can recover their claims from CAIL in the event that there are insufficient assets held by CAL to meet all claims. Explain the legal basis of your answer.