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objective reasonable grounds and the establishment of liability is not dependent on personal elements. 315 The standard of proof of section 592(1) is the criminal standard, beyond reasonable doubt. 316 It is not clear as to the position in Malaysia because there is no decided case under section 303(3). However, in decided cases under section 304(1), the courts noted that the section only uses the words „if it appears‟ and concluded that it indicates that a lower standard of proof is required. 317 It should also be noted that the fraudulent trading provisions contain both civil and criminal liability. It is submitted, therefore, that the court may apply the same lower standard to section 303(3) because it also uses the phrase „if it appears.‟ Australia has since reformed section 592(1) and replaced it with section 588G of the Corporations Act 2001. However, despite the changes in some wording of the section, the essences of insolvent trading provisions remain the same. The current section uses „reasonable grounds for suspecting insolvency‟ in place of „reasonable grounds for expecting that the company will not be able to pay all its debts…‟ Insolvency is defined under the Act as the inability to pay off debts as and when they become due and payable. 318 In terms of procedures, the section provides for civil penalty which is no longer contingent upon criminal conviction although there is, in addition, a criminal penalty for dishonesty. The reform is deemed as appropriate considering that civil and criminal liabilities have different objectives. The civil liability has the aim of compensating creditors while the purpose of criminal conviction is to punish the offenders. In addition to the criminal sanction and personal liability in Malaysia, a director who has been a director of a company which at any time has gone into liquidation 315 Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699 at 704. 316 Ross McConnel Kitchen & Co Pty Ltd v Ross (1985) 3 ACLC 326. 317 Siow Yoon Keong v H Rosen Engineering BV [2003] 4 MLJ 569; Kawin Industrial Sdn Bhd (in liquidation) v Tay Tiong Soong [2009] 1 MLJ 723 and in LMW Electronics Pte Ltd v Ang Chuang Juay & Ors [2010] 1 MLJ 185. 318 Section 95A of the Australian Corporations Act 2001 defines insolvency as: “A person is solvent if and only if the person is able to pay all the person‟s debts as and when they become due and payable.” 306
can be disqualified from taking part in the management of the company for a period not exceeding five years. 319 The relevant section has been inserted as a result of an amendment to the Companies Act in 2007. The purpose of enacting the section is to promote accountability and transparency. By disqualifying directors whose company has been subjected to liquidation, members of the public will be protected from these errant directors. The Corporate Law Reform Committee (CLRC) in 2006 proposed that the existing fraudulent trading and insolvent trading provisions should remain. The committee, instead, focused on improving and reforming directors‟ duties for the purpose of improving accountability and transparency. 319 See section 130A of the Malaysian Companies Act 1965. 307
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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
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The term 'insolvency' has also long
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equivalent to medical negligence ca
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meaning of inability to pay debts.
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It is important to distinguish as t
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long as the accounts give true and
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current assets must be taken stock
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cases the presumption of insolvency
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It is interesting to note in reachi
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CHAPTER 9 THE COMMON LAW DUTIES OF
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Voluntary creditors can be divided
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are not personally liable for any l
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confidence, a trustee who has been
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interests of various parties in the
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overriding duty is to the sharehold
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to look at the directors‟ purpose
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9.3.3 Duty not to Fetter Discretion
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The decisions of the Federal Court
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case, directors should disclose the
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misconception that the case law and
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other reference as to the developme
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Australia and Malaysia have express
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out “ ...the judgment is in the b
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the prospect of success as well as
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judge adopted the principle of iden
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individual trading through a compan
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liability can be imposed on them wh
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liquidators when it is insolvent. C
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CHAPTER 10 DIRECTORS’ DUTY TO PRE
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Malaysia did not make any changes o
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interpretation of these provisions.
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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
Page 325 and 326: company. In this aspect, section 21
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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
Page 343 and 344: 10.4.3 Duty in relation Obligation
Page 345 and 346: fraudulent purpose.” 201 Although
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Page 349 and 350: The first civil version of the inso
Page 351 and 352: amounts. 223 In Hussein v Good, 224
Page 353 and 354: of law of contract. The court must
Page 355 and 356: defendant. 244 Therefore, a directo
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Page 359 and 360: trading without any other action ta
Page 361 and 362: Another defect of the section is in
Page 363 and 364: argue that there are reasonable gro
Page 365 and 366: 10.6.2 Responsibility for Fraudulen
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Page 369 and 370: The courts have acknowledged that t
Page 371 and 372: The defendant in the case relying o
Page 373 and 374: To date, there have been few cases
Page 375: ability of the company to pay off i
Page 379 and 380: power to do so is an archaic equita
Page 381 and 382: is for a short period of time. This
Page 383 and 384: ights against the company are froze
Page 385 and 386: involves a situation where the comp
Page 387 and 388: 11.2.3 Winding-up Liquidation is a
Page 389 and 390: 11.2.3.1 Effects of Successful Avoi
Page 391 and 392: transactions, 59 the provisions cle
Page 393 and 394: 11.2.3.1.2 Recovery from Third Part
Page 395 and 396: ecover the proceeds of sale or to p
Page 397 and 398: order. 83 If the value of the asset
Page 399 and 400: Without this class action, the unse
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Page 403 and 404: defraud, which implies their culpab
Page 405 and 406: also be enforced by the company. 11
Page 407 and 408: The court has the power if it think
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Page 413 and 414: Marketing Consortium (No 2) 147 cle
Page 415 and 416: discovered that the director had en
Page 417 and 418: compensatory. 163 Damages are asses
Page 419 and 420: of causation similar to torts in as
Page 421 and 422: ecause the court considered that it
Page 423 and 424: It should be noted that Re Cyona Di
Page 425 and 426: 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
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COBURN, Niall F, 'Insolvent Trading
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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
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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
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See also Secretary of State for Tra
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Most jurisdictions in Australia hav
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