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shareholders, and that this is responsible for the success of the company.
Stakeholders are as vulnerable as shareholders in most circumstances, and cannot
make personal arrangements to protect themselves; hence they too should be
protected by the law. The chapter hence seeks to find the harmonization between the
two competing theories.
Chapter 7 inquires into the relationship between the doctrine of capital maintenance
and creditors’ protection. The chapter discusses the relevant sections in the
Companies legislation of Malaysia, the United Kingdom and Australia which have
adopted the common law principles as well as their exceptions. Statutes have
allowed companies to depart from the doctrine, provided they are solvent at the time
of the action. It raises the question as to the relevance of the principles which were
developed in the early stage of the development of company law. The New Zealand
Companies Act 1993 leads in this aspect by abolishing the principle and replacing it
with a solvency test. The chapter thus looks at this concept as a means to protect
creditors.
Chapter 8 continues to explore insolvency as the preferred method to protect
creditors and why it is more suitable to be used for such purpose. It discusses the
meaning and tests of solvency, together with the advantages and disadvantages of
each test. This chapter also looks at the differences between a company’s insolvency
and illiquidity, and their relationship with a director’s personal liability.
Having discussed the fundamental theories of company law, Chapters 9-11 provide
the legal response at common law and statutes to circumstances when directors are
held personally liable. The ability to hold directors liable personally is particularly
beneficial to creditors when the company is insolvent, since assets are scarce at that
time, and imposing liability on directors would increase the pool of assets available
for distribution. Legislation from New Zealand, the UK, Australia and Malaysia is
examined, compared and contrasted in order to determine which provisions are
mostly appropriate.
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