Before the High Court For Whom the Bell Tolls: Directors' Duties to Creditors after Bell

Hargovan, AC; Harris, J

Before the High Court For Whom the Bell Tolls: Directors' Duties to Creditors after Bell

Hargovan, AC Harris, J

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Publisher:: Lawbook Co.
Publication Type:: Journal Article
Citation:: Sydney Law Review, 2013, 35 (2), pp. 433 - 450
Issue Date:: 2013-01

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Field	Value	Language
dc.contributor.author	Hargovan, AC	en_US
dc.contributor.author	Harris, J https://orcid.org/0000-0001-7099-4694	en_US
dc.date.issued	2013-01	en_US
dc.identifier.citation	Sydney Law Review, 2013, 35 (2), pp. 433 - 450	en_US
dc.identifier.issn	0082-0512	en_US
dc.identifier.uri	http://hdl.handle.net/10453/27776
dc.description.abstract	It is now established, following High Court dicta in Walker v Wimborne and Spies, that directors owe a duty to consider creditors interests upon corporate insolvency, and that such a duty is one of imperfect obligation that is incapable of direct enforcement by the creditors. Notwithstanding such orthodox authority, the precise nature and scope of directors duties to creditors upon corporate insolvency remains a vexed issue that continues to plague the judiciary as a consequence of the absence of any detailed consideration of such issues by the High Court. The recent appellate court decision in the Bell Group case exemplifies the legal uncertainties on this topic, which arose upon the directors exploration of corporate rescue plans in the context of looming insolvency. In particular, it is now unclear whether directors must go beyond consideration of creditors interests and ensure that creditors are protected in conformity with the pari passu principle. The extent to which the judiciary can intervene to adjudicate on the directors beliefs and business judgments is also clouded by uncertainty. The High Court of Australia will consider such issues in an upcoming appeal. This note discusses the context of the decision and argues that the directors duties to consider creditor interests, while beneficial, should not be elevated to ensure pari passu treatment when directors make commercial decisions to save the company. To hold directors to be in breach of fiduciary duties in such circumstances, when they have acted in good faith, runs the risk of hindering corporate rescue opportunities, as well as undermining the business judgment of directors. Further, the goal of creditor protection can be achieved by existing legal rules and does not require the elevation of the duty from one of consideration to one of protection.	en_US
dc.publisher	Lawbook Co.	en_US
dc.relation.ispartof	Sydney Law Review	en_US
dc.title	Before the High Court For Whom the Bell Tolls: Directors' Duties to Creditors after Bell	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	35	en_US
utslib.for	180109 Corporations and Associations Law	en_US
utslib.for	1801 Law	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Law
utslib.copyright.status	closed_access
pubs.consider-herdc	true	en_US
pubs.issue	2	en_US
pubs.volume	35	en_US

Abstract:

It is now established, following High Court dicta in Walker v Wimborne and Spies, that directors owe a duty to consider creditors interests upon corporate insolvency, and that such a duty is one of imperfect obligation that is incapable of direct enforcement by the creditors. Notwithstanding such orthodox authority, the precise nature and scope of directors duties to creditors upon corporate insolvency remains a vexed issue that continues to plague the judiciary as a consequence of the absence of any detailed consideration of such issues by the High Court. The recent appellate court decision in the Bell Group case exemplifies the legal uncertainties on this topic, which arose upon the directors exploration of corporate rescue plans in the context of looming insolvency. In particular, it is now unclear whether directors must go beyond consideration of creditors interests and ensure that creditors are protected in conformity with the pari passu principle. The extent to which the judiciary can intervene to adjudicate on the directors beliefs and business judgments is also clouded by uncertainty. The High Court of Australia will consider such issues in an upcoming appeal. This note discusses the context of the decision and argues that the directors duties to consider creditor interests, while beneficial, should not be elevated to ensure pari passu treatment when directors make commercial decisions to save the company. To hold directors to be in breach of fiduciary duties in such circumstances, when they have acted in good faith, runs the risk of hindering corporate rescue opportunities, as well as undermining the business judgment of directors. Further, the goal of creditor protection can be achieved by existing legal rules and does not require the elevation of the duty from one of consideration to one of protection.

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http://hdl.handle.net/10453/27776