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'.
Highlights
It is a generally accepted proposition that the duty of the directors of a company is to run the business of the company in the best interests of the company
It is the case that in a number of jurisdictions statutory changes have sought, in certain circumstances, to render the directors and others who were concerned with the management of the company prior to the insolvent liquidation, liable to contribute to the assets of the company so as to assist the insolvent estate in meeting the company's debts to its creditors
Phenomenon, namely that of a shift in the focus of the directors' duties from company and shareholders to creditors as the company becomes insolvent and nears the stage of a formal declaration of its insolvent status. This new phenomenon seems to have struck a chord in many different jurisdictions, but is, on the other hand elusive and not without controversy. As this principle would have it, the focus of the duty of director and officers shifts to creditors when the company enters the zone of insolvency, the creditors should be able to enforce that duty before the formal declaration of insolvency
Summary
It is a generally accepted proposition that the duty of the directors of a company is to run the business of the company in the best interests of the company. Salomon's case meant the authority for the proposition that the company was a separate legal entity from that of the people who constituted the company, as well as the beginning of the process of wrestling with the veil of incorporation and its piercing or – in more genteel discussions – its lifting The first of these propositions is at the root of the shift in the balance of power from creditor to entrepreneur, the second is our continuing attempt to ensure that we have achieved the right balance between these two opposing commercial forces
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
