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concluded purchasing goods from third party when the company has ceased
operation and insolvent could not be in the interest of the company. The court also
made reference to the decision in Winkworth v Edward Baron Development Co Ltd 73
and acknowledged directors owe duty to creditors not to act in their own interests to
the prejudice of creditors when the company is insolvent.
Although the case did not elaborate further on the issue, it shows that the Malaysian
courts, albeit later than in the UK, New Zealand and Australia, have begun to
acknowledge the interests of creditors during insolvency. The Malaysian Corporate
Law Reform Committee (CLRC) in its Consultative Document when reviewing and
reformulating directors‟ duties proceeds on the premise that the duty is owed to the
company whilst taking into account the interests of other stakeholders. 74 Despite
acknowledging the need to foster good relations with other stakeholders in order to
improve governance, the CLRC did not regard it necessary to be incorporated into
the statute. 75
The decisions of the courts in all jurisdictions indicate similar characteristics; the
duty is owed by directors primarily to the company. Directors have a duty to
consider the interest of shareholders in making decisions when the company is
solvent but the duty shifts to creditors in insolvency of the company. The duty of
directors in this situation is to consider whether his or her action will prejudice the
likelihood of creditors being paid. It should be noted, however, the duty should not
be construed to mean that a company could not take any risks at all, but that directors
must weigh all relevant factors available to them at the time to determine the chance
of success. In doing so, the court would look at whether a reasonable man in the
similar circumstances would have taken such risks.
73 [1986] 1 W.L.R. 1512.
74 Malaysia Corporate Law Reform Committee “A Consultative Document on Clarifying and
Reformulating the Directors‟ Role Duties” (2006) at [4.4]. [CLRC Clarifying and Reformulating
the Directors‟ Role Duties ].
75 Ibid, at [4.7].
87