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The position in Australia has clearly indicated that only contractual creditors are
governed under the section. The courts in Australia have specifically excluded
involuntary creditors from insolvent trading actions, and it is submitted that it
produces a result that is inconsistent with the legislative drafting adopted by the
statute.
Directors who breach the duty, will have to contribute towards the company‘s
general funds and this will increase the chances of creditors getting paid. When the
company is liquidated, the assets are often not enough to pay off all creditors in full,
and contributions from directors in this event would have increased the general funds
available for distribution. Although it is very unlikely that creditors will be paid in
full, the distribution based on the pari passu principle would at least provide them
some equitable distribution.
Another criticism on distribution is that the rewards are available for all past and
present creditors when the real victims in this situation are those who become
creditors after trading occurred. However, the overall effect of the
wrongful/reckless/insolvent trading provision would be the reduction of the
company‘s net assets and therefore it could be argued that all creditors will be
affected because the likelihood of their obtaining their payment in full is doubtful. In
Malaysia, the proceeds of the claim are not to be paid to the company but to the
creditor who made the application, hence only the one who suffers losses will be
compensated. Likewise in Australia, if a creditor brings an action under section
588M, then only he or she is entitled to the sums.
11.4 Disqualification of Directors
11.4.1 The Statutory Provisions
11.4.1.1 Introduction
This part of the thesis will look at director‘s disqualification as a consequence of his
or her actions in the company. The analysis of this issue will focus on section 6 of
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