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Page 220-it is asserted that directors should be able to escape liability if they can
show their decisions were made in good faith and for the benefit of the company and
the concept is wide enough to cover all aspects of directors’ duties.
The duty referred to in this situation is in relation to creditors before winding up and what
is suggested that directors should make decisions based in good faith for the benefit of
the company. Benefit to the company should not be measured only in terms of profit but
also the impact of the decision on the company‘s wellbeing. 7 Directors should be able to
show that proper consideration has been given to all parties involved in in the company.
It is also important for a director not to take unnecessary risks and risk exposing the
company to insolvency. This recommendation is made in relation to Malaysian law
which at the moment has an ineffective insolvent trading provision.
In addition the Malaysian Companies Act 1965 has a provision on a business judgment
rule 8 whose fundamental purpose is to protect the authority of directors in the exercise of
their duties and to clarify their liability. The business judgment rule is aimed at
facilitating legitimate business decisions and risk taking and thus encourages commerce.
By widening the application of the common law on this matter to take account of the
creditor‘s interests it hoped that it would encourage directors to be more accountable for
the company‘s financial situation and would improve the insolvent company‘s creditors
by imposing liability on directors for breach of duty. It would also encourage directors to
seek advice from competent professionals when financial difficulties are lurking. In the
absence of any real deterrence, directors who owe very limited duties to creditors can
7 It is acknowledged that in New Zealand is not as such as illustrated in the case of Robb v Sojourner [2008]
1 NZLR 493 at [31] (CA). In the case, the Court of Appeal when deciding whether directors have
breached their duty of good faith and to act in the best interests of the company looked at whether the sale
of the assets of the company to an associated company was at fair value. Despite acknowledging the
policy consideration which may favour the ring-fencing of losses and the setting up of the phoenix
company to preserve a salvageable business, the court decided that the directors have breached their duty-
―Directors who propose to adopt this course however should take care to ensure that the value paid by the
phoenix is fair. This is likely to involve , at the very least, a contemporaneous independent valuation of the
assets being acquired.‖
8 See discussion in the thesis chapter 9 at 207-213.
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