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considered as stakeholders based on the stakes they have put into the corporation. Shareholders provide capital, and in exchange expect the return of their investment. 60 Creditors lend finances or supply goods, hoping for payment to be made on time. 61 Employees contribute human capital to the company in exchange for remuneration and safe working conditions. 62 Consumers‟ interests are vested in the products of the company which they expect to be safe and to provide value for money. The local community's interests in the company would include the possibility of employment, developing the local area and ensuring that the local environment is protected. Each of these groups has a different magnitude of claims in the company, depending on the costs in producing their inputs. 63 The UK incorporated into the Companies Act 2006 the duty on directors to act in good faith in a way he or she considers would likely to promote the success of the companies. The duty to promote the success of the company is translated by the Act as acts which will benefit its members as a whole. Therefore, the duty under section 172 of the Companies Act 2006 does not differ from the common law principle which equates the interests of company to the interests of shareholders. The section also includes the need for directors to have regard to other factors listed in the section; the employees, suppliers, customers, environment and others. 64 It is 60 Hill and Jones ibid. 61 Ibid. 62 Ibid. 63 Ibid. 64 Section 172(1) of the UK Companies Act 2006 provides “A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to: (a) the likely consequences of any decision in the long term; (b) the interests of the company‟s employees; (c) the need to foster the company‟s business relationships with suppliers, customers and others; 130
important for directors to build long-term and trusting relationships with these other stakeholders in order to secure the long term success of the company. The duty under the section nevertheless does not create any rights for the persons listed, other than the shareholders and the company, to bring action for breach of the provisions. The law still operates within the confines of fiduciary duty, namely duty to act in the interests of the company. Section 172 only requires directors to consider their wider role in discharging their duty to act in good faith for the interests of the company. Directors are obliged to consider the interests of other stakeholders under the Act but this does not mean they have to include every interest in the decision-making. The paramount duty is still to the long term success of the company and not to any other parties. The section, in fact, may be used by directors as defence against claims by shareholders for breach of duty. Directors can argue if shareholders take action that the action taken is made after considering the interest of other stakeholders and in their honest belief it is for the benefit of the company. 6.3.1 Creditors The duty to consider the interests of creditors is not a new concept and has been accepted by courts in situations where a company‟s financial stability is in doubt. 65 There is voluminous literature both for and against the duty to consider the interests (d) the impact of the company‟s operations on the community and the environment; (e) the desirability of the company maintaining a reputation for high standards of business conduct; and; (f) the need to act fairly as between members of the company. 65 See cases in Chapter 5. 131
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http://researchcommons.waikato.ac.n
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ABSTRACT This study examines the le
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TABLE OF CONTENTS ABSTRACT i ACNOWL
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CHAPTER 5 THEORY OF THE CORPORATION
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7.3.3.3 Distribute its Capital to M
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10.2.5.1 Meaning of Insolvency 10.2
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10.6.2.2 Carrying on of any Busines
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CHAPTER 12 CONCLUSION AND RECOMMEND
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CLC Australian Company Law Cases CL
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Stanford LR Stanford Law Review Ste
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Facia Footwear Ltd (in administrati
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Re Avon Chambers Ltd [1978] 2 NZLR
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Re Produce Marketing Consortium Ltd
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Ultraframe (UK) v Fielding & Ors [2
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Mountford v Tasman Pacific Airlines
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Australia 3M Australia Pty Ltd v Ke
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Linton v Telnet Pty Ltd (1999) 30 A
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Malaysia Abdul Aziz bin Atan v Lada
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Perman Sdn Bhd & Ors v European Com
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Other Jurisdictions Singapore Rahj
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Companies Act 2006 Section 60(3)(c)
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Section 993 Section 993(2) Section
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Insolvency Act 1985 37, 70 Insolven
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Section 251 255 Part II Schedule 6
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Section 52(1) Section 52(2) Section
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Section 272(2) Section 272(2)(a) Se
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Section 385(4)(b) Section 385(4)(b)
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AUSTRALIA Absent Debtors Act (NSW)
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Section 206D(1)(b)(b)(ii) 374 secti
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Section 588FE(2)(a) Section 588FE(2
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section 588H (5) 241 Section 588H(6
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Section 598(3)(b) Section 598(3)(c)
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Bankruptcy Act 1967 MALAYSIA Sectio
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Section 130A(6) 391 Section 131 221
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Companies Regulation 1966 Regulatio
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CHAPTER 1 THE STRUCTURE OF THE THES
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A discussion of directors’ duties
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The far-reaching implication of cor
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2.2.1 The United Kingdom The common
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2.2.3 Australia Australia has been
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CHAPTER 3 LITERATURE SURVEY - AN OV
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shareholders, had failed to mitigat
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was mainly responsible for the chal
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3.3 Interests in the Company-Shareh
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contributed by the shareholders and
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Statutes have attempted to address
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how the matter should be dealt with
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4.2 Development of Corporate and In
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colonies. 14 The emergence of compa
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originally incorporated in order to
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usiness fraud. 42 In 1825, the Bubb
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Companies Act also reveals providin
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Companies Ordinance 1953 of Sabah a
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In 1977, the Cork Committee was app
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the Committee foresaw difficulty du
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operation and termination of a comp
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enforceability of security interest
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procedure, and dispensed with the o
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The creditors‟ protection princip
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shareholders and on personal bankru
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directors as trustees. 162 Members
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4.3.3 Development of Insolvency Leg
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In Australia, the government respon
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appointment of an administrative re
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the current statutes were not effic
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insist on protection to directors i
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and judgment to run the company. 21
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due to the difficulty in obtaining
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The Australian Law Commission in 19
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instead, enacted section 135 253 in
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4.5 Conclusion Malaysia, New Zealan
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CHAPTER 5: THE THEORY OF THE CORPOR
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needs someone to run it on its beha
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The implication of the decision is
Page 149 and 150: English decisions as guidance and t
Page 151 and 152: Shareholders who have to incur high
Page 153 and 154: interests of shareholders by maximi
Page 155 and 156: situation, directors have a duty to
Page 157 and 158: concluded purchasing goods from thi
Page 159 and 160: stipulates directors “may conside
Page 161 and 162: subsidiary and may continue to pros
Page 163 and 164: A holding company may use a subsidi
Page 165 and 166: section 187 of the Australian Corpo
Page 167 and 168: its holding company), act in a mann
Page 169 and 170: is just and equitable, to make an o
Page 171 and 172: Syndicates (NZ) Limited (in liq) 13
Page 173 and 174: a) Extent to which the Related Comp
Page 175 and 176: That the management did not differe
Page 177 and 178: equirement of insolvency and it doe
Page 179 and 180: The House of Lords in Woolfson v St
Page 181 and 182: subsidiary. Abdul Malik J held that
Page 183 and 184: defendant company. During a meeting
Page 185 and 186: Uniphoenix Corporation Bhd v Raymon
Page 187 and 188: justice alone is not sufficient; th
Page 189 and 190: lenders, employees, suppliers and c
Page 191 and 192: company and as the residual claiman
Page 193 and 194: The claim that shareholders‟ righ
Page 195 and 196: particularly lack of effective mana
Page 197 and 198: management of the companies. Credit
Page 199: players‟ interests intertwine wit
Page 203 and 204: Despite having included favourable
Page 205 and 206: at the intersection of a number of
Page 207 and 208: Directors must weigh any particular
Page 209 and 210: Directors will also enlist the serv
Page 211 and 212: Contractarians regard employees in
Page 213 and 214: terms to their liking, they either
Page 215 and 216: to boycott the company. 134 The com
Page 217 and 218: On the other hand, the duty owed to
Page 219 and 220: and experiences in order to dischar
Page 221 and 222: CHAPTER 7: A CONCEPTUAL ANALYSIS OF
Page 223 and 224: Economists divided real capital whi
Page 225 and 226: the transformation of shares as rea
Page 227 and 228: the company‟s ability to pay its
Page 229 and 230: purchase or will not become insolve
Page 231 and 232: available where special resolution
Page 233 and 234: The idea that maintaining share cap
Page 235 and 236: must be satisfied by the company in
Page 237 and 238: 7.4 Conclusion The doctrine of capi
Page 239 and 240: and once a resolution is passed, to
Page 241 and 242: The term 'insolvency' has also long
Page 243 and 244: equivalent to medical negligence ca
Page 245 and 246: meaning of inability to pay debts.
Page 247 and 248: It is important to distinguish as t
Page 249 and 250: long as the accounts give true and
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current assets must be taken stock
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cases the presumption of insolvency
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It is interesting to note in reachi
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CHAPTER 9 THE COMMON LAW DUTIES OF
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Voluntary creditors can be divided
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are not personally liable for any l
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confidence, a trustee who has been
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interests of various parties in the
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overriding duty is to the sharehold
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to look at the directors‟ purpose
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9.3.3 Duty not to Fetter Discretion
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The decisions of the Federal Court
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case, directors should disclose the
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misconception that the case law and
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other reference as to the developme
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Australia and Malaysia have express
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out “ ...the judgment is in the b
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the prospect of success as well as
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judge adopted the principle of iden
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individual trading through a compan
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liability can be imposed on them wh
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liquidators when it is insolvent. C
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CHAPTER 10 DIRECTORS’ DUTY TO PRE
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Malaysia did not make any changes o
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interpretation of these provisions.
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sum of money that is owed or due.
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Hence, action can be brought agains
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Directors in Australia can be held
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to the director to prove that he or
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expect that the company was solvent
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In the case of Secretary of State f
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trading at a deficit. 64 In other w
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maintained in section 213 of the In
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not „a party‟ if he knew that m
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econcile the two judgments with one
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carrying it on (whether because of
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10.3.1.3 For any other Fraudulent P
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company. In this aspect, section 21
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to Australia and New Zealand which
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even though it was evident from the
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the steps taken were with the aim o
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decisions. 150 Therefore, directors
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The Law Commission proposed that th
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to reform the law, namely to reduce
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A similar issue was raised in the E
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The decision was later upheld by th
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10.4.3 Duty in relation Obligation
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fraudulent purpose.” 201 Although
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from the carrying on of the busines
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The first civil version of the inso
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amounts. 223 In Hussein v Good, 224
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of law of contract. The court must
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defendant. 244 Therefore, a directo
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additional capital, as well as a re
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trading without any other action ta
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Another defect of the section is in
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argue that there are reasonable gro
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10.6.2 Responsibility for Fraudulen
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Siow Yoon Keong v H Rosen Engineeri
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The courts have acknowledged that t
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The defendant in the case relying o
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To date, there have been few cases
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ability of the company to pay off i
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can be disqualified from taking par
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power to do so is an archaic equita
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is for a short period of time. This
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ights against the company are froze
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involves a situation where the comp
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11.2.3 Winding-up Liquidation is a
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11.2.3.1 Effects of Successful Avoi
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transactions, 59 the provisions cle
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11.2.3.1.2 Recovery from Third Part
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ecover the proceeds of sale or to p
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order. 83 If the value of the asset
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Without this class action, the unse
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the power to apply for a compensati
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defraud, which implies their culpab
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also be enforced by the company. 11
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The court has the power if it think
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contravention or pecuniary penalty
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discretion to order the director‘
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Marketing Consortium (No 2) 147 cle
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discovered that the director had en
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compensatory. 163 Damages are asses
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of causation similar to torts in as
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ecause the court considered that it
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It should be noted that Re Cyona Di
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11.3.7.2.3 Duration The court also
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contribution order is made to the
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This is similar to the case of frau
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company is using funds belonging to
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Since section 304(1) originates fro
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11.3.8.2 Problems of Enforcement/Pr
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However, extracting promise of inde
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In relation to an action against a
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Investments Commission is entitled
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The position in Australia has clear
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Disqualification on the grounds of
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As a result of the recommendations
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exercised by the Registrar or the O
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actions which are committed with a
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The court has to deduce evidence of
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11.4.2.1 Standard of Proof Disquali
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11.4.2.2 Court’s Order Section 6
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of disqualification. 322 However, t
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mitigating factors considered by th
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11.5 Other Remedies 11.5.1 Mareva I
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for under the Act. 348 The action p
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of trust or breach of duty in relat
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CHAPTER 12 CONCLUSION AND RECOMMEND
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The separate legal personality conc
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deemed to be an alien concept to Br
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positive action to minimize losses
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insolvent. In Malaysia, there is no
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BIBLIOGRAPHY BOOKS and ARTICLES AHM
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BENNETT, Howard, 'Late Floating Cha
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COBURN, Niall F, 'Insolvent Trading
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http://ssrn.com/abstract=988944 at
Page 487 and 488:
FISHER, Gregory, LEE , Janet and JO
Page 489 and 490:
GUNASEKARA, Gehan and TOY, Alan, 'L
Page 491 and 492:
HOPT, Klaus J., 'Comparative Compan
Page 493 and 494:
KEAY, Andrew and Murray, Michael, '
Page 495 and 496:
McCHESNEY, Fred S., 'Economics, Law
Page 497 and 498:
OTTOLENGHI, S, 'From Peeping Behind
Page 499 and 500:
ROSS, Mike, Corporate Reconstructio
Page 501 and 502:
SCHWARTZ, Alan, ‗A Normative Theo
Page 503 and 504:
WALTERS, Adrian, 'Void Dispositions
Page 505 and 506:
WORTHINGTON, Sarah, 'Subrogation Cl
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REPLIES TO EXAMINERS APPENDIX 1 Pag
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Page 220-it is asserted that direct
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What are the criteria for determini
Page 513 and 514:
addition it provides incentive for
Page 515 and 516:
See also Secretary of State for Tra
Page 517 and 518:
Most jurisdictions in Australia hav
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