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overriding duty is to the shareholders, directors may overlook the other stakeholders
in this situation.
It is settled law that directors are required to take creditors' interests into
consideration when insolvency lurks because now creditors are the residual
claimants of the company‟s assets. 44 However, it is not a direct duty owed to
creditors, and the duty remains to the company. Creditors, therefore, do not have
direct access to bring action against directors and it is up to the company to do so. 45
Hence, despite the court‟s acknowledgement of creditors‟ interests in insolvency
situations, there is no change in the concept of directors‟ duty which continues to be
to the company.
The courts and the statutes have always focused on creditors when the company has
become insolvent or is about to become so. When the company is having financial
difficulties, it is highly probably that it may be wound up, and at that point of time
creditors will be subjected to the pari passu principle. 46 In this situation, the
likelihood of creditors being paid in full is very low and they may have to be
satisfied with lesser amounts. In addition, the law does not confer any right on
creditors to take action against the company or directors, even when the company
has been wound up, and the right lies with the liquidator who decides whether to
pursue the action or not.
Directors should have regard to the interests of creditors in pre-insolvency situations
because that may help them to make better decisions in the interests of the
44 Davies above n37 at [16-34]-[16-35]; Walker v Wimborne (1976) 3 ACLR 531; West Mercia Safety
Ltd (in liq) v Dodd (1988) BCLC 250; Nicholson v Permakraft (NZ) Ltd [1985] 1 NZLR 243;
Kawin Industrial Sdn Bhd (in liquidation) v Tay Tiong Soong [2009] 1 MLJ 723.
45 See the rule in Foss v Harbottle (1843) 2 Hare 461.
46 Goode above n14 at [7-27]. For lists of preferential debts-see Schedule 6 of the Insolvency Act
1986.
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