Walker liquidating akron

Choosing the ‘right’ course of action when insolvency looms has always been difficult for directors.

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A ‘safe harbour carve out’ from insolvent trading liability is intended to encourage directors, particularly of large companies, not to prematurely liquidate financially troubled companies which could be rescued.

While the federal government has been successful in introducing this measure, which was part of its 2016 National Science and Innovation Agenda, this article argues that some of the underlying justifications for the safe harbour are flawed and that it may not be effective.

Company directors benefit from the fact that the company is a separate legal entity and that debts incurred in the company’s name by them as its controllers are payable by the company.

Like companies themselves, liability imposed on directors for insolvent trading is a creation of statute, if a ‘somewhat convoluted’ one.

the aim is to encourage early positive action to deal with insolvency.

It will be worthwhile and a considerable advantage over present procedures if it saves or provides better opportunities to salvage even a small percentage of the companies which, under the present procedures, have no alternative but to be wound up.A more significant objection is that the safe harbour could lead to a greater prevalence of illegal phoenix activity, sheltering under the appearance of business rescue.The benefit of the liability carve out to the ‘big end of town’ is not worth this risk.However, despite these desirable and widely accepted goals, the corporate form was abused.In particular, its use by persons who took advantage of being able to conduct business through a company with a minimum paid up capital was in marked contrast to the original conception of a company as a means of attracting substantial capital to undertake significant projects.Initially, the development of the law of the limited liability company centred upon the protection of investors (shareholders and debenture holders).

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