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Company law - Essay Example

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The loan by SPFL to WRFL and SPFL’s guaranteeing of WRFL’s bank loan as well of the management of WRFL are all assessed by reference to directors’ duties as delineated in Sections 170-177 of the Companies Act 2006. Generally, directors’ are responsible for managing the…
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Company law
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Company law

Download file to see previous pages... The loan by WRFL to SPFL and the guaranteeing of SPFL’s bank loan by WRFL raises the issue of director’s duties to creditors and shareholders. Had SPFL not been experiencing some financial difficulties, there would have been no duties to consider. Creditors typically have no status jointly or severally with respect to companies that are solvent.4 However, when a company is suffering difficulties or is insolvent the position is quite different. Moreover, while creditors will not be able to sue a solvent company for mismanagement, directors do have a duty to safeguard the interests of creditors. As Lord Templeman stated in Winkworth v Edward Baron Development Co. Ltd:
A duty is owed by directors to the company and to the creditors of the company to ensure that the affairs of the company are properly administered and that its property is not dissipated or exploited for the benefit of the directors themselves to the prejudice of the creditors.5
In addition to owing a duty to creditors to safeguard against the mismanagement of the company’s property and assets, Section 172 (3) of the Companies Act 2006 carries the duty to creditors a bit further. This further duty is found in the duty to promote the success of the company for its members6 which is subject to the any law that requires directors “in certain circumstances to consider or act in the interests of creditors of the company”.7 Even so, the duty toward creditors is not such that directors are required to act in the best interest of creditors but merely to ensure that action taken would not leave creditors more disadvantaged than they would be upon liquidation.8
The overall duty of directors to act in the best interests of the company and its members generally includes the duty to act in the best interests of its shareholders.9 The duty to shareholders and creditors as described so far ...Download file to see next pagesRead More
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