Director and Officer Liability in the Zone of Insolvency; A Comparative Analysis

Authors

  • Harry H Rajak North West University(Potchefstroom Campus)

DOI:

https://doi.org/10.17159/1727-3781/2008/v11i1a2751

Abstract

It is the duty of the directors of a company to run the business of the company in the best interests of the company and its shareholders. In principle, the company, alone, is responsible for the debts incurred in the running of the company and the creditors are, in principle, precluded from looking to the directors or shareholders for payment of any shortfall arising as a result of the company's insolvency. This principle has, in a number of jurisdictions undergone statutory change such that in certain circumstances, the directors and others who were concerned with the management of the company may be made liable to contribute, personally, to meet the payment – in part or entirely – of the company's debts. This paper aims to explore this statutory jurisdiction. It also seeks to describe succinctly the process by which the shift from unlimited to limited liability trading was achieved. It will end by examining briefly a comparatively new phenomenon, namely that of a shift in the focus of the directors' duties from company and shareholders to the creditors as the company becomes insolvent and nears the stage of a formal declaration of its insolvent status – the so-called 'zone of insolvency'.

   ScienceOpen_Log0430.png

Downloads

Download data is not yet available.

References

Bibliography

Alexander 1992 Harv L Rev 415

Alexander J "Unlimited Shareholder Liability Through a Procedural Lens" 1992 (106) Harv L Rev 387

Ballantine Corporations 303

Ballantine HW Corporations Rev ed (Callaghan New York 1946)

Berle 1947 Colum L Rev 349-353

Berle AA "The Theory of Enterprise Entity" 1947 (47) Colum L Rev 343

Campbell 1975 Ky LJ 53

Campbell RB "Limited Liability for Corporate Shareholders: Myth or Matter-Of-Fact" 1975 (63) Kentucky Law Journal 23-27

Cheng Wai Yuen 2002 Sing LR 104

Cheng Wai Yuen M "Corporate Directors' Common Law Duty to Creditors? – A Revelation of the Present State of the Law" 2002 (22) Sing LR 104

Coffee and Klein 1991 Univ of Chicago LR 1207

Coffee JC and Klein WA "Bondholder Coercion: The Problem of Constrained Choice in Debt Tender Offers and Recapitalizations" 1991 (58) Univ of Chicago LR 1255-1256

Cohen 1998 Oklahoma Law Review 438

Cohen DL "Theories of the Corporation and the Limited Liability Company" 1998 (51) Oklahoma Law Review 427

Easterbrook and Fischel Economic Structure of Corporate Law

Easterbrook F and Fischel DR The Economic Structure of Corporate Law (Harvard University Press Cambridge 1991)

Formoy Historical Foundations of Company Law 32-36

Formoy RR The Historical Foundations of Company Law (Sweet & Maxwell London 1923)

Davies and Gower Principles of Modern Company Law

Davies PL and Gower LCB Gower and Davies: Principles of Modern Company Law 7th ed (Sweet & Maxwell London 2003)

Davies and Gower Gower's Principles

Davies PL and Gower LCB Gower's Principles of Modern Company Law 6th ed (Sweet & Maxwell London 1997)

Hamilton 1971 Texas LR 985-989

Hamilton RW "The Corporate Entity" 1971 (49) Texas LR 979

Havenga "Directors' Fiduciary Duties Under Our Future Company Law Regime" 1997 (9) SA Mercantile LJ 310, 318ff

Hu and Westbrook 2007 Columbia Law Review 1321-1403

Hu HTC and Westbrook JL "Abolition of the Corporate Duty to Creditors" 2007 (107) Columbia Law Review 1321-1403

Lin L "Shift of Fiduciary Duty upon Corporate Insolvency" 1993 (46) Vanderbilt Law Review 1485 at 1512

McCulloch Considerations on Partnerships with Limited Liability 10-11

McCulloch JR Considerations on Partnerships with Limited Liability (Longman, Brown, Green & Longmans London 1856)

Pennington 1960 Mod LR 630

Pennington RR "The Genesis of the Floating Charge" 1960 Modern Law Review 630-646

Report of the Company Law Committee [Cmnd 1749] (1962)

Report of the Review Committee on Insolvency Law and Practice [Cmnd 8558] (1982)

Sigwadi 2003 SA Mercantile LJ 303

Sigwadi M "Personal Liability for the Debts of Close Corporations: Compromise and Personal Liability under Section 424 of the Companies Act 61 of 1973" 2003 (15) SA Mercantile LJ 303

Thompson 1991 Cornell L Rev 1065

Thompson RB "Piercing the Corporate Veil: An Empirical Study" 1991 (76) Cornell L Rev 1036

Thomson D "Directors, Creditors and Insolvency: A Fiduciary Duty or a Duty Not to Oppress?" 2000 (58) UT Fac L Rev 31

Vandervoort 2004 DePaul Bus & Comm LJ 53-56

Vandervoort JK "Piercing the Veil of Limited Liability Companies: The Need for a Better Standard" 2004 (3) DePaul Bus & Comm LJ 51

Worthington S "Directors' Duties, Creditors' Rights and Shareholder Intervention" 1991-92 (18) Melbourne University LR 121, 122, 133ff, 151ff

Ziegel 1993 UTLJ 511

Ziegel JS "Creditors as Corporate Stakeholders: The Quiet Revolution – An Anglo-Canadian Perspective" 1993 (43) University of Toronto Law Journal 511

Register of legislation

Business Corporations Act (Ca)

Close Corporations Act 69 of 1984 (SA)

Companies Act 1862 (UK)

Companies Act 1929 (UK)

Companies Act 2006 (UK)

Companies Act 61 of 1973 (SA)

Corporations Act 2001 (Aust)

Enterprise Act 2002 (UK)

Insolvency Act 1986 (UK)

Joint Stock Companies Act 1844

Limited Liability Act 1855

Limited Partnership Act 1907

Partnership (Amendment) Act 1854 (Bovill's Act)

Partnership Act 1890

Register of court cases

Broderip v Salomon [1895] 2 Ch 323

Colin Gwyer & Associates Ltd & Anor v London Wharf (Limehouse) Ltd & Ors [2003] BCC 885

Edwards v Standard Rolling Stock Syndicate [1893] 1 Ch 574

Facia Footwear Ltd (in admin) v Hinchliffe [1998] 1 BCLC 218

Grace v Smith (1775) 96 ER 587, 588; 2 Wm Bl 997

Hallett v Dowdall (1852) 21 LJ QB 98

Harri and Others NNO v On-Line Management CC & Others 2001 (4) SA 1097

In re Mortgage America Corporation 714 F 2d 1266

In Re Victoria Steamboats, Limited [1897] 1 Ch 158

Inland Revenue Commissioners v Goldberg [1972] Ch 498

JH Rayner Mincing Lane Ltd and Others v Department of Trade and Industry and Others [1987] BCC 413

Kinsela & Anor v Russell Kinsela Pty Ltd (in liquidation) [1986] 4 NSWLR 722; (1986) 4 ACLC 215

L & P Plant Hire BK en andere v Bosch en andere 2002 (2) SA 662

Lawrence v West Somerset Mineral Railway Company [1918] 2 Ch 250

Lordon NO v Dusky Dawn Investments (Pty) Ltd (in liquidation) 1998 (4) SA 519

Makins v Percy Ibotson & Sons [1891] 1 Ch 133

Nicholson v Permakraft (NZ) Ltd [1985] 1 NZLR 242

Peek v Trinsmaran Iron Company 2 Ch D 115

People's Department Stores Inc v Wise 244 DLR (4th) 564

Pressma Services (Pty) Ltd v Schuttler and another 1990 (2) SA 411

Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266

Re Darby [1911] 1 KB 95

Re MDA Investment Management Ltd [2005] BCC 783

Re New York Taxicab Company Limited [1913] 1 Ch 1

Re Panama, New Zealand and Australian Royal Mail Company (1870) 5 Ch app 818

Re Sea Fire and Life Assurance Company (Greenwood's case) (1854) 3 De GM&G 459, 43 ER 180

Re Tilt Cove Copper Company Limited [1913] 2 Ch 58

Salomon v Salomon & Co Ltd [1897] AC 22

Timothy Brown (as Liquidator of Cityspan Limited) v Nicholas Clark 2007 EWHC 751 (Ch)

Victoria Steamboat [1897] 1 Ch 158

Walker v Wimborne [1975] 137 CLR 1

Waugh v Carver (1793) 126 ER 525, 2 Hy Bl 235

West Mercia Safetywear Ltd (in liquidation) v Dodd [1988] BCLC 250

Westminster Corporation v Haste [1950] Ch 442

Wood v Dummer 30 F Cas 435 (D Me 1824) (No 17,994)

Register of Internet resources

Bentham Manual of Political Economy http://socserv.mcmaster.ca/ 27 Feb

Bentham J Manual of Political Economy [Found on internet] http://socserv.mcmaster.ca/econ/ugcm/3ll3/bentham/manualpoliticaleconomy.pdf [Date of use 27 February 2008]

Published

26-06-2017

Issue

Section

Articles

How to Cite

Rajak, H. H. (2017). Director and Officer Liability in the Zone of Insolvency; A Comparative Analysis. Potchefstroom Electronic Law Journal, 11(1), 30-66. https://doi.org/10.17159/1727-3781/2008/v11i1a2751