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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. 2
A discussion of directors’ duties at common law is the focus of Chapter 9. Common law imposes duty on directors to act in the interest of the company and courts have equated it with that of shareholders. However, there is a tendency of the court to shift the duty to consider the interest of creditors when the company’s finance is unhealthy. The chapter looks at directors’ fiduciary duties and illustrates their relationship with protection to creditors. Chapter 10 reviews the statutory provisions on fraudulent trading/wrongful trading/insolvent trading/reckless trading in the four selected jurisdictions. It contains a detailed analysis of the provisions in the company and insolvency legislations, and examines the courts’ interpretations of them so as to determine the extent to which creditors are protected. Chapter 11 investigates the consequences of breach of the provisions discussed and analysed in Chapter 10. It evaluates cases on these issues in order to ascertain whether the primary aims of protecting creditors when the company is insolvent, and to provide compensation, have been achieved. In addition, it looks at the corporate insolvency process and other remedies available to creditors, as well as problems of enforcement. The concluding Chapter 12 summarises the analyses and arguments of the thesis, and based upon them, offers recommendations for the best reforms in Malaysia. 3
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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
Page 21 and 22: Facia Footwear Ltd (in administrati
Page 23 and 24: Re Avon Chambers Ltd [1978] 2 NZLR
Page 25 and 26: Re Produce Marketing Consortium Ltd
Page 27 and 28: Ultraframe (UK) v Fielding & Ors [2
Page 29 and 30: Mountford v Tasman Pacific Airlines
Page 31 and 32: Australia 3M Australia Pty Ltd v Ke
Page 33 and 34: Linton v Telnet Pty Ltd (1999) 30 A
Page 35 and 36: Malaysia Abdul Aziz bin Atan v Lada
Page 37 and 38: Perman Sdn Bhd & Ors v European Com
Page 39 and 40: Other Jurisdictions Singapore Rahj
Page 41 and 42: Companies Act 2006 Section 60(3)(c)
Page 43 and 44: Section 993 Section 993(2) Section
Page 45 and 46: Insolvency Act 1985 37, 70 Insolven
Page 47 and 48: Section 251 255 Part II Schedule 6
Page 49 and 50: Section 52(1) Section 52(2) Section
Page 51 and 52: Section 272(2) Section 272(2)(a) Se
Page 53 and 54: Section 385(4)(b) Section 385(4)(b)
Page 55 and 56: AUSTRALIA Absent Debtors Act (NSW)
Page 57 and 58: Section 206D(1)(b)(b)(ii) 374 secti
Page 59 and 60: Section 588FE(2)(a) Section 588FE(2
Page 61 and 62: section 588H (5) 241 Section 588H(6
Page 63 and 64: Section 598(3)(b) Section 598(3)(c)
Page 65 and 66: Bankruptcy Act 1967 MALAYSIA Sectio
Page 67 and 68: Section 130A(6) 391 Section 131 221
Page 69 and 70: Companies Regulation 1966 Regulatio
Page 71: CHAPTER 1 THE STRUCTURE OF THE THES
Page 75 and 76: The far-reaching implication of cor
Page 77 and 78: 2.2.1 The United Kingdom The common
Page 79 and 80: 2.2.3 Australia Australia has been
Page 81 and 82: CHAPTER 3 LITERATURE SURVEY - AN OV
Page 83 and 84: shareholders, had failed to mitigat
Page 85 and 86: was mainly responsible for the chal
Page 87 and 88: 3.3 Interests in the Company-Shareh
Page 89 and 90: contributed by the shareholders and
Page 91 and 92: Statutes have attempted to address
Page 93 and 94: how the matter should be dealt with
Page 95 and 96: 4.2 Development of Corporate and In
Page 97 and 98: colonies. 14 The emergence of compa
Page 99 and 100: originally incorporated in order to
Page 101 and 102: usiness fraud. 42 In 1825, the Bubb
Page 103 and 104: Companies Act also reveals providin
Page 105 and 106: Companies Ordinance 1953 of Sabah a
Page 107 and 108: In 1977, the Cork Committee was app
Page 109 and 110: the Committee foresaw difficulty du
Page 111 and 112: operation and termination of a comp
Page 113 and 114: enforceability of security interest
Page 115 and 116: procedure, and dispensed with the o
Page 117 and 118: The creditors‟ protection princip
Page 119 and 120: shareholders and on personal bankru
Page 121 and 122: 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
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company. In this aspect, section 21
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to Australia and New Zealand which
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even though it was evident from the
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the steps taken were with the aim o
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decisions. 150 Therefore, directors
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The Law Commission proposed that th
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to reform the law, namely to reduce
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A similar issue was raised in the E
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The decision was later upheld by th
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10.4.3 Duty in relation Obligation
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fraudulent purpose.” 201 Although
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from the carrying on of the busines
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The first civil version of the inso
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amounts. 223 In Hussein v Good, 224
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of law of contract. The court must
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defendant. 244 Therefore, a directo
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additional capital, as well as a re
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trading without any other action ta
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Another defect of the section is in
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argue that there are reasonable gro
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10.6.2 Responsibility for Fraudulen
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Siow Yoon Keong v H Rosen Engineeri
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The courts have acknowledged that t
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The defendant in the case relying o
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To date, there have been few cases
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ability of the company to pay off i
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can be disqualified from taking par
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power to do so is an archaic equita
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is for a short period of time. This
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ights against the company are froze
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involves a situation where the comp
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11.2.3 Winding-up Liquidation is a
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11.2.3.1 Effects of Successful Avoi
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transactions, 59 the provisions cle
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11.2.3.1.2 Recovery from Third Part
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ecover the proceeds of sale or to p
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order. 83 If the value of the asset
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Without this class action, the unse
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the power to apply for a compensati
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defraud, which implies their culpab
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also be enforced by the company. 11
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The court has the power if it think
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contravention or pecuniary penalty
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discretion to order the director‘
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Marketing Consortium (No 2) 147 cle
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discovered that the director had en
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compensatory. 163 Damages are asses
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of causation similar to torts in as
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ecause the court considered that it
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It should be noted that Re Cyona Di
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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
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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
Page 515 and 516:
See also Secretary of State for Tra
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Most jurisdictions in Australia hav
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