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I read a critical article in a Finnish newspaper about a Finnish energy company (Fortum) buying most of a risky energy company (Uniper). Eventually Fortum lost practically all of the money invested but didn't go bankrupt.

What was strange in that article in my opinion was speculation that if Fortum would have had enough time to buy 100% of shares of Uniper, and Uniper went bankrupt, it would mean Fortum also going bankrupt.

This seemed very odd to me. My understanding is that most companies (and all publicly traded companies) are limited-liability companies so if a company goes bankrupt, its investors can lose only the invested money, not anything else. Does that change if the investor is a company that owns 100% of the shares?

So, would a company owning 100% shares of another company go bankrupt, if the other company goes bankrupt?

(Sorry, the article is in Finnish so very few people here would understand it, and the link would go behind a paywall very fast too, because only recent articles of that newspaper are available for free, old ones require subscription.)

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  • "I read a critical article in a Finnish newspaper ..." — Do you have a link to the article? I would like to read it.
    – Flux
    Oct 15, 2022 at 13:09
  • @Flux hs.fi/talous/art-2000009130258.html
    – juhist
    Oct 15, 2022 at 18:47
  • @juhist That article (which I had Google translate into English) contains the answer to your question: “In January 2022, Fortum gave Uniper a total of eight billion euros in loans and guarantees.” That’s what puts it at risk if United fails.
    – Mike Scott
    Oct 18, 2022 at 10:45

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There are a couple of possibilities here. First, people lending money to a subsidiary company may require parent company guarantees, meaning that the parent agrees to repay those debts if the subsidiary goes bankrupt. Second, losing the value of the subsidiary from its balance sheet may cause the parent company to breach the conditions of its own loans, requiring them to be repaid immediately.

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