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at the intersection of a number of different areas of law. The effect of this device is
to transfer assets covered under such clause out of the reach of small creditors.
Therefore, the same defects mentioned above still exist at the expense of small
creditors who remain unsecured.
Contractarians who disagree with the additional duty imposed on directors to take
into account creditors‟ interests, insist that it will restrict directors from the risk-
taking which is commonly associated with businesses. 82 Their arguments are mostly
founded on the law and economic perspectives. They argue that directors will be
pressured to adopt defensive measures in order to protect themselves from liability. 83
They will not be willing to venture into new, risky projects for fear that they will be
liable in the event such venture fails to materialize. 84 In addition, the imposition of
an additional duty on directors will encourage directors to put the company into
premature liquidation rather than face the possibility of personal liability, and would
certainly change the role from active management to passive assets preservation. 85
Thus, it will reduce the net value of the corporation because of the directors‟ decision
not to invest in the projects which would have a positive net value to the firm. 86
The Contractarian assumes a perfect market scenario and that creditors have equal
bargaining power. 87 Creditors can negotiate with the company and adjust the interest
rate in accordance with the risks involved. 88 Creditors can also insist on guarantees
82 Cheffins above n8 at 541; Andrew Keay Company Directors’ Responsibilities to Creditors
(Routledge-Cavendish, London, 2007) at 310-311 [“Company Directors”].
83 Keay “Company Directors” above n82 at 310.
84 Ibid.
85 Ibid.
86 Ibid.
87 Cheffins above n8 at 81-82; Finch “Measures” above n66 at 233.
88 Ibid.
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