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must be satisfied by the company in addition to the requirement that the board must
resolve that the assistance is in the best interests of the company. 86
The statute replaces the doctrine and provides that when a company trades whilst
insolvent, it loses the right to rely on the limited liability. 87 The company, therefore,
is compelled to maintain the company‟s solvency although the obligation to do so is
not absolute due to inevitable risks of trading. 88 The right, however, is forfeited when
the company exposes assets and capital to risks at the creditors‟ expense. 89 The
courts have been very cautious in deciding whether the risks are legitimate and have
applied an analogy equivalent to medical negligence cases. 90
In Malaysia, the requirement of solvency has been incorporated in section 67A in
relation to share buy back/ purchasing its own shares in 1997. The provision allows a
company to buy its own shares provided the company is solvent at the date of
purchase and will not become insolvent as a result of the purchase. 91 The
requirement was made during the financial crisis, at the time when many companies
were in financial difficulties. The purpose of allowing a company to purchase its
own shares is to stabilise the supply and demand as well as the share prices traded in
Stock Exchange due to the circumstances at the time. 92 At the same time, creditors
86 See section 76(2)(b) of the New Zealand Companies Act 1993.
87 Mountfort v Tasman Pacific Airlines of NZ Ltd [2006] 1 NZLR 104 at 112.
88 Mountfort v Tasman Pacific Airlines of NZ Ltd [2006] 1 NZLR 104.
89 Mountfort v Tasman Pacific Airlines of NZ Ltd [2006] 1 NZLR 104 at 113.
90 Mountfort v Tasman Pacific Airlines of NZ Ltd [2006] 1 NZLR 104 at 114; in medical negligence
cases enunciated in Bolam v Friern Hospital Management Committee [1957] 1 WLR 582, the court
looked at whether acceptable professional standards have been complied with unless such standards
are shown to be wholly unreasonable.
91 See section 67A(2) “A company shall not purchase its own shares unless-
(a) it is solvent at the date of the purchase and will not become insolvent by incurring the debts
involved in the obligation to pay for the share purchased;
92 Ben Chan Chong Choon, Phillip Koh Tong Ngee and Peter SW Ling, Chan & Koh on Malaysian
Company Law principles & Practice (Sweet & Maxwell, Malaysia, 2006) at 338.
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