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and experiences in order to discharge that duty. The objective standard imposed by
the law on directors when exercising their skills, care and experience is provided as
protection to stakeholders from actions which are deemed as unreasonable.
In this instance, the court's role as guardian of interests for all parties is important to
determine whether the act is reasonable. However, stakeholders who feel that the
action is not in the interests of the company, for example where directors have
breached their fiduciary duty, do not have direct access to the remedy. The remedy is
exclusively for the company and shareholders in a derivative action. Further,
shareholders can ratify the action at the general meeting.
Company law is not seen as part of mechanism to protect stakeholders because their
interests have been dealt with by specific statutes, for example, consumer protection
law environmental legislation and labour law. Creditors have always been regarded
as superior to the debtors and hence have the ability to protect their own interests.
They are expected to arrange for security and the law should not intervene to
regulate their interests for them. This argument, however, only works in perfect
markets where parties are assumed to have equal bargaining power. In reality, there
are many creditors, especially small creditors, could not demand security and will be
most affected if the company is having difficulty.
The duty not to trade when the company is insolvent confers protection to creditors
in addition to insolvency law. In New Zealand, Australia and Malaysia, the law gives
rights to creditors to bring action against directors for breach of duty for trading
whilst the company is insolvent. In the UK the right to bring action remains with the
liquidator because the right to bring action for wrongful trading is only available
during liquidation. (The issues will be discussed further in Chapter 7). The
insolvency law also granted employees a position as preferential creditors in respect
of certain amounts of unpaid wages.
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