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This cycle was repeated during the great depression in the 1930s during which many
businesses had to close down due to the lack of capital and high inflation rates. 171
Similarly, the financial crisis in 1987 affected the business community and caused
the governments of Australia and New Zealand to review their companies
legislation. The Asian financial crisis in 1998, once again, saw failures of many
businesses in Asia which compelled governments to review their insolvency
legislation and their corporate governance systems in order to avoid similar
circumstances in the future.
Threats of wars had also created panic and caused trust in the financial markets to
waver. 172 Creditors began to cut lending and seek liquidity, believing that trade
would be affected by war. 173 Hence the business community was hit by a lack of
credit which contributed to the numbers of business failures. 174 The aftermath of the
First World War, for example, saw the world economy slump to the era of the Great
Depression with high inflation rates and high unemployment. 175 The introduction of
limited liability not only generated more company formation to be formed, but was
also indirectly responsible for the growing number of company failures. 176
171 Robert Higgs Depression, War and Cold War: Studies in Political Economy (Independent Institute,
Oakland, CA 2006) at 5-9.
172 Hoppit above n157 at 49.
173 Ibid.
174 Ibid.
175 Ibid.
176 As a result of stiff competition, small businesses and inefficiently managed companies were driven
out of business, especially during the depression era in the late nineteenth century. In addition, the
availability of limited liability also encouraged the formation of companies for fraudulent and
unsound purposes. Promoters took advantage of limited liability to set up companies which were
never intended to exist, or if they were formed, they would be subjected to winding up soon after
the formation. Frauds were also committed by directors during the operations of the company.
Promoters and directors were able to profit from the company‟s failures at the expense of
shareholders and creditors. See Geoffrey Todd “Some Aspects of Joint Stock Companies, 1844-
1900” (1932) 4 Econ. Hist. Rev 46 at 64-66.
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