View/Open - Research Commons - The University of Waikato

On the other hand, the court would not hesitate to prevent any actions which tend to
enhance directors‟ control over the company. 58 This could be due to the possibility
that when existing shareholders‟ control is diluted and replaced by that of the
directors‟, the likelihood of abuse of power is high. Directors who are also the
majority shareholders can now act as they please and can easily perform actions
which are not provided for in the Constitutions ratified by the shareholders at the
general meeting.
This could indirectly affect the creditors if the proposed actions result in the
instability of the company‟s finances. In contrast, if the purpose of issuing new
shares is to raise capital, the court has found such an action to be not improper. 59 The
court‟s decision has indirectly protected the creditors‟ interests, especially if the
decision is viewed from the perspective of the capital maintenance doctrine. 60
When the company is insolvent or its financial status is doubtful, the court will also
examine whether the purpose of the directors‟ action is to remove the funds from the
reach of creditors. If the purpose of directors is this, the court is more likely to hold
the directors liable for breach of duty even though the act in question is permissible
by the Constitutions. 61
58 Austin and Ramsay above n26 at [8.210].
59 Punt v Symons & Co Ltd [1903] 2 Ch 506.
60 See Gavin Kelly and John Parkinson “The Conceptual Foundations of the Company: A Pluralist
Approach” in John Parkinson, Andrew Gamble and Gavin Kelly (Eds) The Political Economy of the
Company (Hart Publishing, Oxford and Portland (Oregon), 2000) 113 at 115-116 and Chapter 6 of
the thesis.
61 Re Day-Nite Carrier Ltd (in liquidation) [1975] 1 NZLR 172; Re Avon Chambers Ltd [1978] 2
NZLR 638; Re Horsley & Weight Ltd [1982] 3 All ER 1045; Charterbridge Corporation Ltd v
Lloyds Bank Ltd [1969] 2 All ER 1185; Hilton International Ltd v Hilton [1989] 1 NZLR 442;
Walker v Wimborne (1976) 137 CLR 1; Kinsela v Russell Kinsela Pty Ltd (1986) 4 NSWLR 222;
Re Peace Insurance Co Ltd [1964] 1 MLJ 232.
200