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covered under the contract, 10 and therefore they are entitled to the company‟s
assets. 11
The law as it stands at the moment has imposed on directors a duty to consider the
interests of creditors when making the decision of when the company is insolvent;
failure to do so will result in personal liability. Likewise, the law also imposes a duty
on directors to prevent the company from engaging in trading when the company is
insolvent. It is deemed sufficient to protect the interests of creditors because that is
the only time when creditors‟ interests are prejudiced.
Recently, there has been some inkling that directors should also consider various
other stakeholders in the company in addition to shareholders. The existing law is
deemed inadequate because it only considers the interests of shareholders and does
not have any regard for other stakeholders in the company. This is because every
party in the corporation contributes to the success of the company and therefore the
law should recognize this.
This chapter will provide views on both the shareholders and stakeholders theory. It
will provide the outline of the theory and focus will be made particularly to creditors.
6.2 Development of Shareholders’ Primacy Theory
Shareholders‟ supremacy endorses the view of directors as agents of shareholders,
who are employed to run the business exclusively for the shareholders‟ wealth
maximization. 12 This right is based on property rights; shareholders own the
10 Frank H. Easterbrook and Daniel R. Fischel, The Economic Structure of Corporate Law,
(Harvard University Press, Cambridge (Mass), 1991) at 68.
11 In the event of winding up, creditors are the residual claimant and entitled to the assets of the
company. They have the priority. The law has also acknowledged the creditors‟ rights when the
company is insolvent/in financial difficulty by shifting the duty to creditors-see Chapter 5.
12 Cheffins above n 8 at 54
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