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interests of shareholders by maximising their wealth. Shareholders are perceived as
owners of the company because of their contribution towards the capital of the
company as well as their rights to appoint directors, hence the duty owed to them. In
contrast, other key players in the company, particularly the creditors, cannot claim
that such duties are owed to them because businesses have always been associated
with risks. Creditors can avoid or protect themselves by either refusing to contract or
negotiating favourable terms.
The position changes if the company is insolvent because at this stage shareholders‟
priority to the company‟s profit is replaced by the right of creditors to be paid. As
such, creditors are seen as the beneficiaries to the company‟s benefit and cases have
indicated courts' willingness to acknowledge there is a duty to consider the interests
of creditors when making decisions.
In Walker v Wimborne, 54 the High Court of Australia regarded directors as having
breached their duty for failure to take into account the interests of shareholders and
creditors. Mason J asserted directors‟ failure to consider the creditors‟ interests
would have adverse consequences for both the company and the directors. 55 The
effects of such failure would be the company‟s insolvent condition and the liability
imposed on the directors.
In the UK, the courts‟ inclination towards favouring creditors‟ interests was first
shown in the case of Lonrho Ltd v Shell Petroleum 56 although the decision in
54 (1976) 3 ACLR 529 at 531.
55 (1976) 3 ACLR 529 at 531.
56 [1980] 1 WLR 627; Lord Diplock stated at 634 “the best interests of the company are not
necessarily those of the shareholders but may include those of the creditors”. However, His
Lordship did not indicate whether the statements made were in connection of director‟s duty to
creditors. See also Re Horsley & Weight Ltd [1982] 3 All E.R. 1045 where Templeman LJ
concluded interests of the company could include the rights of creditors, hence directors have an
indirect duty to consider the interests of creditors.
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