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The far-reaching implication of corporate personality status conferred on a
corporation which aims to overcome the procedural problems of enforcement in
partnership was not fully appreciated until the judgment in Salomon v Salomon &
Co 4 which enunciated that the company and the person controlling it are two separate
persons. The rule which requires any action being taken against the company and not
the person responsible for the action has resulted in difficulty for creditors in
enforcing the right of repayment when the company is insolvent. This thesis explores
the relationship between these two concepts; i.e. the separate legal entity and limited
liability.
The thesis asks a specific question: Does the law impose personal liability on
directors in circumstances where their actions prejudice the creditors’ right to be
repaid? In pursuing this question, the thesis will also explore the doctrine of
maintenance of capital and the piercing of the corporate veil. It seeks to compare
different statutory approaches with the view to recommending the best reform in
Malaysia.
2.2. Methodology
The thesis will engage in doctrinal and comparative legal studies for the purpose of
identifying the extent to which the law provides protection to creditors. The doctrinal
research concerns the discovery and development of legal doctrines and its research
questions take the form of asking What is the law? in particular contexts. 5 To answer,
the methods of deductive and analogical reasoning are adopted.
Deductive reasoning identifies a general rule and then applies it to particular facts.
The conclusion of the research will then state whether the general rule is applicable
to the specific facts and whether the specified legal outcome takes effect.
4 [1897] A.C. 22.
5 Paul Chynoweth “Legal Research” in Andrew Knight and Les Ruddock (Eds) Advanced Research
Methods in the Built Environment (Blackwell Publishing Ltd, Chichester (UK), 2008) at ch 3.
5