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doubtful insolvency or if payment or action would jeopardise solvency, creditors‟
interests should also be considered.
The judge went on to state that in considering whether the company is insolvent the
test to be applied is whether the directors‟ action would prejudice the company‟s
ability to discharge its debts to current and likely continuing creditors. 68 Accordingly,
future creditors did not warrant protection and must take precautions on their own
unless there was fraud. 69 In discharging the directors‟ duty, the test used is objective;
whether at the time of the payment the directors should have appreciated or ought to
have known that it was likely to cause loss to creditors or threatened the continuing
existence of the company. 70
Until recently in the case of Kawin Industrial Sdn Bhd (in liquidation) v Tay Tiong
Soong, 71 courts in Malaysia have not included creditors as one of the parties that
directors should consider when discharging their duty to act in the best interests of
the company. In Kawin Industrial Sdn Bhd (in liquidation) v Tay Tiong Soong, 72 the
liquidator took action against the director who had caused an amount of money to be
paid to himself instead of paying off the creditor. Consequent to the director‟s action,
a judgment sum has been entered against the company for failure to pay the creditor.
The court had to consider whether there was a breach of fiduciary duty by the
director and whether he acted in the interests of the company.
The court held that in exercising discretion, directors must act in accordance with
what they perceived as bona fide for the interests of the company. Therefore, it
68 [1985] 1 NZLR 243 at 249.
69 [1985] 1 NZLR 243 at 250.
70 [1985] 1 NZLR 243 at 250.
71 [2009] 1 MLJ 723.
72 [2009] 1 MLJ 723.
86