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cash flow test has been more widely used by the court than the balance sheet test. The balance sheet test has only been used if the creditors have filed the winding up petition without serving a statutory notice of demand as stated in section 218(2)(a). 52 In Sri Hartamas Development Sdn Bhd v MBF Finance Bhd, 53 the court stated that “the presumption of insolvency arises when the requirements of section 218(2)(a) of the Act have been satisfied and it is for the company to prove that it is able to pay its debts.” In deciding whether the company was commercially insolvent, the Supreme Court applied the test used by the Privy Council in Malayan Plant (Pte) Ltd v Moscow Narodny Bank Ltd 54 and held that it did not matter if the company had assets available, if they could not be realized on time to meet its current liabilities , the company was insolvent. 55 The court in Lian Keow Sdn Bhd (In Liquidation) & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors, 56 a preference case under sections 223 and 293, held “the question is not whether the debtor‟s assets exceed his liabilities as appeared in the books of the debtor, but whether there are moneys presently available to the debtor, or which he is able to realize in time, to meet the debts as they become due. It is not sufficient that the assets might be realizable at some future date after the debts have become due and payable.” 57 The court‟s decisions seem to illustrate that a company is insolvent if it fails to pay within the stipulated time. It should be noted that in most 52 See Datuk Mohd Sari bin Datuk Hj Nuar v Idris Hydraulic (M) Sdn Bhd [1997] 5 MLJ 377. 53 [1992] 1 MLJ 313 at 320. 54 [1980] 2 MLJ 53. 55 [1992] 1 MLJ 313 at 320; see also Re Hong Huat Realty [1987] 2 MLJ 502; Hotel Royal Ltd Bhd v Tina Travel & Agencies Sdn Bhd [1990] 1 MLJ 21; Pioneer Concrete (M) Sdn Bhd v Celini Corp Sdn Bhd [1998] 3 MLJ 810; HSBC Bank Malaysia Bhd v CS Metal Industries (M) Sdn Bhd [2006] 2 MLJ 578; Yew Chye Heng & Anor v Venice Hill Living Resort Sdn Bhd [2007] 7 MLJ 566. 56 [1988] 2 MLJ 449. 57 [1988] 2 MLJ 449 at 454; see also PT Anekapangan Dwitama v Far East Food Industries Sdn Bhd [1995] 1 MLJ 21. 182
cases the presumption of insolvency applies and the company will have to rebut such presumption. Goode commented that the formulation of the test is deceptive in its simplicity since it raises a number of questions not fully explored in English law. 58 The difficulty lies with the word „debts‟ itself; whether the court should look into future debts and if so, to what extent. 59 Courts in Australia have adopted a commercial approach to the meaning and held that it "indicates a continuous succession of debts rather than a calculation of debts existing on any particular day." 60 In applying the test, only liquidated claims which at the relevant time constitute existing debts payable should be included. 61 Though in principle future, prospective and contingent debts and liabilities should be ignored, courts still have to bear in mind whether the company in question would be able to discharge its obligation when it is time to do so. 62 The court, however, is reluctant to specify the time period in the future because each case is different and peculiar to its own facts. 63 The fact that the company does not have sufficient cash to pay its debts as they fall due is not a sufficient indication of insolvency for the company. 64 The company can still resort to realizing its assets or borrowing, provided this is done within the 58 Goode above n3 at [4-15]. 59 Ibid. 60 Bank of Australasia v Hall (1907) 4 C.L.R 1514 at 1528. 61 Goode above n3 at [4-18]. 62 Ibid,; Bank of Australasia v Hall (1907) 4 C.L.R 1514 at 1528; Expo International Pty Ltd v Chant [1979] 2 NSWLR 820; Re Kerisbook Pty Ltd (1992) 10 ACLC 619; see also Andrew Keay “The Insolvency Factor in the Avoidance of Antecedent Transactions in Corporate Liquidations” (1995) 21 Monash Uni LR 305 at 314-316. 63 Keay, ibid, at 316. 64 Goode above n3 at [4-22]. 183
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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
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English decisions as guidance and t
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Shareholders who have to incur high
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interests of shareholders by maximi
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situation, directors have a duty to
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concluded purchasing goods from thi
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stipulates directors “may conside
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subsidiary and may continue to pros
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A holding company may use a subsidi
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section 187 of the Australian Corpo
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its holding company), act in a mann
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is just and equitable, to make an o
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Syndicates (NZ) Limited (in liq) 13
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a) Extent to which the Related Comp
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That the management did not differe
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equirement of insolvency and it doe
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The House of Lords in Woolfson v St
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subsidiary. Abdul Malik J held that
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defendant company. During a meeting
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Uniphoenix Corporation Bhd v Raymon
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justice alone is not sufficient; th
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lenders, employees, suppliers and c
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company and as the residual claiman
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The claim that shareholders‟ righ
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particularly lack of effective mana
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management of the companies. Credit
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players‟ interests intertwine wit
Page 201 and 202: important for directors to build lo
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
Page 251: current assets must be taken stock
Page 255 and 256: It is interesting to note in reachi
Page 257 and 258: CHAPTER 9 THE COMMON LAW DUTIES OF
Page 259 and 260: Voluntary creditors can be divided
Page 261 and 262: are not personally liable for any l
Page 263 and 264: confidence, a trustee who has been
Page 265 and 266: interests of various parties in the
Page 267 and 268: overriding duty is to the sharehold
Page 269 and 270: to look at the directors‟ purpose
Page 271 and 272: 9.3.3 Duty not to Fetter Discretion
Page 273 and 274: The decisions of the Federal Court
Page 275 and 276: case, directors should disclose the
Page 277 and 278: misconception that the case law and
Page 279 and 280: other reference as to the developme
Page 281 and 282: Australia and Malaysia have express
Page 283 and 284: out “ ...the judgment is in the b
Page 285 and 286: the prospect of success as well as
Page 287 and 288: judge adopted the principle of iden
Page 289 and 290: individual trading through a compan
Page 291 and 292: liability can be imposed on them wh
Page 293 and 294: liquidators when it is insolvent. C
Page 295 and 296: CHAPTER 10 DIRECTORS’ DUTY TO PRE
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Page 299 and 300: interpretation of these provisions.
Page 301 and 302: 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
Page 483 and 484:
COBURN, Niall F, 'Insolvent Trading
Page 485 and 486:
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
Page 507 and 508:
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
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addition it provides incentive for
Page 515 and 516:
See also Secretary of State for Tra
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Most jurisdictions in Australia hav
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