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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

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Dabner, Justin (1994) 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. PhD thesis, University of Tasmania.

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Abstract

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will be rescinded although these have seldom been of advantage to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.

Item Type: Thesis (PhD)
Keywords: Debtor and creditor, Limited liability, Corporation law
Copyright Holders: The Author
Copyright Information:

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).

Additional Information:

Volume numbering on spine incorrect. Includes bibliographical references. Thesis (Ph.D.)--University of Tasmania, 1995

Date Deposited: 09 Dec 2014 00:01
Last Modified: 09 May 2016 06:40
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