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no interest accrued, and no security was provided. Under the
memorandum of agreement executed in 1971, which governed their
relationship, the subsidiary was required to remit amounts
payable to the parent “as promptly as practicable.” In practice,
WFGI permitted the French subsidiary to retain WFGI's 65-percent
share of sale proceeds to pay other creditors and finance its
working capital needs generally. Although the French subsidiary
made payments from time to time, the intercompany account showed
a substantial balance due WFGI in every year from FY 1971 to
FY 1984.
Intercompany Account Balance Payable to WFGI
FY Balance FY Balance FY Balance
1971 $1,179,903 1976 $354,165 1981 $885,013
1972 629,622 1977 453,777 1982 630,466
1973 991,735 1978 348,369 1983 1,026,143
1974 890,779 1979 286,419 1984 11,061,425
1975 707,021 1980 990,982
1Prior to cancellation as of September 30, 1984.
Owing to the large and persistent intercompany debt, the
French subsidiary's balance sheets showed a deficit in
shareholder's equity in every one of these years as well.
Consequently, to have caused the subsidiary to pay greater
amounts to the parent would have jeopardized the subsidiary's
ability to continue paying its debts to third parties. The
officers of WFGI believe that any action by the parent company
that caused the subsidiary's insolvency to become publicly known
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