View/Open - Research Commons - The University of Waikato

or additional security or other self help remedies 89 in order to protect them further
when extending credit to the firm. There are also existing statutory provisions 90 in
the Companies Acts as well in the Insolvency legislation which are deemed
sufficient to protect creditors. Common law cases have also provided ample
protection to creditors when the company is on the brink of insolvency.
Communitarians, on the other hand, reason that when the company is insolvent,
creditors‟ rights are transformed into equity-like rights and they become the major
stakeholders in the company. 91
The creation of an additional duty to include considering creditors‟ interests does not
mean that the directors‟ hands are tied and cannot in any circumstances involve risks
in decision-making. To do so would undermine the basic foundation of a corporation
to create wealth, and directors make decisions on commercial activities associated
with risk on a daily basis. On the other hand, directors should not be given a free rein
to engage in excessively risky investments if the company‟s financial position does
not allow them to do so. What is required from the directors is for them to be prudent
and to acquire information in order to consider various interests before making any
decisions.
89 These refer to arrangements creating security devices such as reservation of title, hire purchase
agreements or lien. The key aspect of these agreements is to enable the company to raise funds
while titles remain with creditors. This allows creditors to avoid the having to compete with other
creditors in the event company is subjected to insolvency proceedings (Vanessa Finch Corporate
Insolvency Law Perspective and Principles (2 nd ed., Cambridge University Press, Cambridge, 2009
at 77-79).
90 See for example see section 127 of the UK Insolvency Act 1986; section 292 of the New Zealand
Companies Act 1993; sections 223 & 292 of the Malaysian Companies Act 1965; section 588FJ of
Australian Corporations Act 2001.
91 Keay “Company Directors” above n82 at 338-340.
136