University of Tasmania
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An historical and comparative analysis of the development of the avenues of recovery available to creditors of insolvent companies and the consequential erosion of the privilege of limited liability

posted on 2023-05-26, 22:55 authored by Dabner, Justin
This thesis provides an historical and comparative analysis of the development of the avenues of recovery from corporate controllers available to creditors of limited liability companies. The thesis proposes that the conflicting goals of the promotion of enterprise through the provision of the privilege of limited liability and the protection of creditors through the provision of a recovery regime have presented both the judiciary and legislatures with a difficult balancing act. This will be demonstrated with evidence of a history of piecemeal and reactive common laws and legislation. In particular it will be observed that the common law has identified a limited category of circumstances where the privilege of limited liability will be rescinded although these have seldom been of advantage to creditors with the exception of a limited fiduciary duty owed by directors to creditors. It will also be demonstrated that whilst the legislature initially perceived creditor protection in terms of corporate disclosure together with a simplified procedure to enhance the effectiveness of the common law remedies, the inadequacies of these remedies soon witnessed the creation of statutory remedies in the form of fraudulent and, latter, reckless/wrongful trading provisions. These became the lynchpin of the creditor recovery regime notwithstanding a history of deficiencies. The thesis acknowledges that although recent legislative reforms, in the form of an insolvent trading provision, are an improvement these reforms are also not without their limitations. The thesis will also explore issues that have arisen in creditor protection with the emergence of group companies. It will be acknowledged that the legislative response has been limited and creditors have sought to exploit other legal avenues, with torts law providing some assistance. However, against the complexities raised by the multinationalisation of company groups little avenue for redress exists. From a comparative analysis of the development of creditor recovery regimes overseas (the United Kingdom, South Africa and New Zealand) it will be concluded that, whilst the Australian approach has merit, experiences in these jurisdictions provide some useful lessons. Possible responses to the inadequacies of the law, including the thematic development of the fraudulent and reckless trading provisions, are then explored and a tentative reform proposal consisting of a tripartite structure which distinguishes between small private companies, \typical\" trading companies and group companies is put forward. This proposal is compared with the Government's recent legislation which will be shown to essentially satisfy one limb of the reform equation. Outstanding reforms are elaborated upon. The thesis concludes with the proposition that the underlying theme of the creditor recovery regime is that the transfer of risk inherent in the provision of the privilege of liability involves an implicit undertaking by corporate controllers that they will not transfer an inappropriate degree of risk onto creditors and through them the community. This is embodied in the requirement that they maintain the solvency of their company or risk recision of the privilege."


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  • Unpublished

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Copyright 1994 the Author - The University is continuing to endeavour to trace the copyright owner(s) and in the meantime this item has been reproduced here in good faith. We would be pleased to hear from the copyright owner(s). Volume numbering on spine incorrect. Includes bibliographical references. Thesis (Ph.D.)--University of Tasmania, 1995

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  • Open

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