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should not be overly concerned that they will be more vulnerable to personal liabilities if they are required to take consideration of other stakeholders including the creditors. This is because the fundamental concept of directors‟ duty, loyalty and good faith to the company is still paramount. 9.8 Conclusion The principle of that a director must act in good faith for the benefit of the company must be construed in accordance with the modern structure of the company. It is no longer acceptable that directors only consider the interests of shareholders which were closely connected to the historical development of the company. Directors, therefore, should consider the interests of various groups which represent the company when exercising their duty to the company. In other words, the interests of the company should be given liberal and wide interpretations to include those who represent the webs of relationship in the company. In relation to creditors, the duty to consider their interests should not be confined to when the company is insolvent or approaching insolvency but should be maintained throughout the life of the company. Considering the interests of the creditors at the initial stage can act as a preventive measure and avoid the company from being wound up in which case the creditors will have to compromise on their debts. The current framework of the directors‟ duty can be maintained as long as when making decisions, directors consider the implication of their action on the company‟s ability to maintain itself as a going concern. Directors should obtain relevant information and weigh the probability of success before making any decisions. They must not be deterred in taking risks since if they have exercised their duty within the parameters of good faith in the interests of the company, they should be protected. Imposing a duty on directors alone is not sufficient if it is not supported by the right of enforcement. Therefore, it is time that creditors be given standing to act against errant directors and not to rely on the company when the company is solvent and on 222
liquidators when it is insolvent. Creditors in Canada, Malaysia and Singapore have been given a right to apply to courts for remedy in cases of oppression. 161 Creditors must show the conduct complained of has affected their right as debenture holders in order to have remedy under the section. The provision in section 181 is wider than in the UK, 162 New Zealand 163 or Australia. 164;165 Courts are given wide discretion to 161 See section 181(1) Malaysian Companies Act 1965- Any member or holder of a debenture of a company, or in the case of a declared company under Part IX, the Minister, may apply to the Court for an order under this section on the ground: (a) that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner oppressive to one or more of the members or holders of debentures including himself or in disregard of his or their interests as members, shareholders or holders of debentures of the company; or (b) that some act of the company has been done or is threatened or that some resolution of the members, holders of debentures or any class has been passed or is proposed which unfairly discriminates against or is otherwise prejudicial to one or more of the members or debenture holders (including himself).” 162 Section 994 UK Companies Act 2006 provides remedy to members for unfairly prejudicial conduct. 163 Section 174(1) New Zealand Companies Act 1993 allows a shareholder or former shareholders or a company or any other entitled person who consider the affairs of the company to be oppressive, unfairly discriminatory or unfairly prejudicial to complain. 164 Section 232 of the Australian Corporations Act 2001 grants power to the court to order a remedy in respect of conduct of the company‟s affairs which are oppressive, unfairly prejudicial to or unfairly discriminatory against members of the company. 165 Lord Wilberforce in Re Kong Thai (Sawmill) (Miri) Sdn Bhd; Kong Thai Sawmill (Miri Sdn Bhd) & Ors v Ling Beng Sung [1978] 2 MLJ 227, the Privy Council at page 228-9 made the distinctions between section 181 and the UK position stated “This section can trace its descent from section 210 if the United Kingdom Companies Act, 1948 which was introduced in that year in order to strengthen the position of minority shareholders in limited companies. It also resembles the rather wider section 186 of the Australian Companies Act, 1951. But section 181 is in important respects different from both its predecessors and is notably wider in scope that the United Kingdom section.” In Owen Sim Liang Khui v Piasu Jaya Sdn Bhd & Anor [1996] 1 MLJ 113, the Federal Court discussed the difference of the section 181 with those from other jurisdictions. Gopal Sri Ram JCA at page 125-6 stated: “The first move towards further legislative liberalisation of the remedy appears to have been the Uniform Companies Act 1961 of Australia which introduced section 186, which was wider in terms than section 210 of the United Kingdom statute, but narrower than our section 181. Subsequently Australia, New Zealand and Canada legislated provisions, resembling section 181 though the latter is of wider import, particularly in regard to the powers of the court to grant relief to shareholders. The decisions of the courts of these countries upon pieces of such legislation, though often helpful, especially in the absence of local authority, must be applied with caution.” 223
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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
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important for directors to build lo
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Despite having included favourable
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at the intersection of a number of
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Directors must weigh any particular
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Directors will also enlist the serv
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Contractarians regard employees in
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terms to their liking, they either
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to boycott the company. 134 The com
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On the other hand, the duty owed to
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and experiences in order to dischar
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CHAPTER 7: A CONCEPTUAL ANALYSIS OF
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Economists divided real capital whi
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the transformation of shares as rea
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the company‟s ability to pay its
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purchase or will not become insolve
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available where special resolution
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The idea that maintaining share cap
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must be satisfied by the company in
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7.4 Conclusion The doctrine of capi
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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 and 252: current assets must be taken stock
Page 253 and 254: cases the presumption of insolvency
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: liability can be imposed on them wh
Page 295 and 296: CHAPTER 10 DIRECTORS’ DUTY TO PRE
Page 297 and 298: Malaysia did not make any changes o
Page 299 and 300: interpretation of these provisions.
Page 301 and 302: sum of money that is owed or due.
Page 303 and 304: Hence, action can be brought agains
Page 305 and 306: Directors in Australia can be held
Page 307 and 308: to the director to prove that he or
Page 309 and 310: expect that the company was solvent
Page 311 and 312: In the case of Secretary of State f
Page 313 and 314: trading at a deficit. 64 In other w
Page 315 and 316: maintained in section 213 of the In
Page 317 and 318: not „a party‟ if he knew that m
Page 319 and 320: econcile the two judgments with one
Page 321 and 322: carrying it on (whether because of
Page 323 and 324: 10.3.1.3 For any other Fraudulent P
Page 325 and 326: company. In this aspect, section 21
Page 327 and 328: to Australia and New Zealand which
Page 329 and 330: even though it was evident from the
Page 331 and 332: the steps taken were with the aim o
Page 333 and 334: decisions. 150 Therefore, directors
Page 335 and 336: The Law Commission proposed that th
Page 337 and 338: to reform the law, namely to reduce
Page 339 and 340: A similar issue was raised in the E
Page 341 and 342: 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
Page 481 and 482:
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
Page 517 and 518:
Most jurisdictions in Australia hav
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