Liability of Directors in Insolvent Liquidation

In: Business and Management

Submitted By theega
Words 2096
Pages 9
Corporation law assignment

According to Solomon v Solomon 1895 a company once incorporated becomes an independent entity free from its shareholder. A company can own property transact its own business and own property in its own name. Once established, company shareholders have limited liability to the extent of their shareholding. The responsibilities of a company are carried out by its board of directors. The board is mandated to carry out the transactions of the company while observing due care and diligence. In the event of insolvency, directors are required to take all the necessary steps towards protecting the assets of the company. At this juncture, they have a fiduciary responsibility to the creditors of the company. A director will be held personally liable in the event of fraudulent and wrongful trading by the directors. A director who has self interest or biased towards particular creditors may be liable for damages incase the company is wound up.

Facts and Issues from the Story
Dart Limited (“company”) a company listed in the Australian security exchange was performing well till the y mid 2007, where it incurred a substantial debt to various banks. To reduce the debt, the company began selling assets. From early 2008, the expenses of the company exceeded the available recurrent income. The monthly interest payable to the banks was running at about $1 million, or $12 million per year, and corporate overheads (such as rent) totaled about $500,000 per year. Predicted cash receipts from the company’s only ongoing business operations were about $10 million. Alan Baxter was employed by the company in the year 2008 to prepare a list of creditors whom he thought would have more preference over the others due to their constant demands. Daniel Abbott, a director of the company, realized around early…...

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