View/Open - Research Commons - The University of Waikato

of creditors, the law generally treated them as outsiders who are capable of
protecting their own interests although the law recognizes their interests when the
company is insolvent or near insolvent.
The underlying theory views the shareholders as having an entitlement that the
company be operated for their benefit (or for whatever other purposes they may
choose) by virtue of their position as members or owners. The law respects the right
of the shareholders to determine the objectives of their association through contracts
and accepts that by virtue of their capital contributions they should be regarded as
owners of the company. By reason of their ownership rights, and given the
‘traditional logic of ownership’, it is taken that the shareholders are entitled to have
the company run in their interests; it is their company. 3
However this theory is no longer relevant in a modern economy where a company is
mostly viewed as production line and anyone who contributes towards the
end/success of the company should have interests in it. The modern definition of
capital includes a wide range of assets not necessary capital, employees’ skill can be
an asset to the company and so is creditors’ loan. Directors are held liable for breach
of their duty to the company. The law imposes a fiduciary duty on directors to act in
the interests of the company and would be held liable even if no loss is suffered by
the company. The duty is imposed solely on the ground that a director holds a
position of trust and confidence and has breached that position.
Likewise in cases where corporate veil is lifted, directors lose the right to rely on the
separate legal entity on the basis they have acted to injure the company, for example
in cases where fraud is committed. In groups of companies, cases have shown that
where the holding company exercises control over wholly owned subsidiary, courts
have lifted the veil and held the holding company to be liable since the wrongful act
was committed at the holding company’s instruction.
3 Ibid, at 75-76.
400