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A number of legal systems make provision for companies trading while insolvent to be unlawful in certain circumstances, and provide for directors to become personally liable for a company's debts if they have acted improperly. In most legal systems, the liability in respect of unlawful transactions only extends for a certain period of time ...
The extent of the director’s responsibility for the company entering into any transaction or giving any preference, being a transaction or preference— (a) liable to be set aside under s. 127 or ss. 238 to 240 of the Insolvency Act 1986, or (b) challengeable under s. 242 or s. 243 of that Act or under any rule of law in Scotland.
Corporations exist in part to shield the personal assets of shareholders from personal liability for the debts or actions of a corporation. Unlike a general partnership or sole proprietorship in which the owner could be held responsible for all the debts of the company, a corporation traditionally limited the personal liability of the shareholders.
Directors of a company can be held personally liable for its debts. [36] [37] The Bankruptcy Law does not apply to government bodies, or to companies trading in free zones such as the Dubai International Financial Centre or the Abu Dhabi Global Market, which have their own insolvency laws. [35]
As in the United Kingdom, oppressive conduct is not restricted to that committed by corporations. In the case of corporate directors, the Supreme Court of Canada in 2017 held that they can be held personally liable for such conduct, but only where: the oppression remedy request is a fair way of dealing with the situation;
Directors and parties related to the bankrupt may still be held personally liable for certain tax debts, [101] and, if a clearance certificate is not obtained from the tax authorities prior to discharge, directors' liability will subsequently resume. [102]
Most companies adopt limited liability for their members, seen in the suffix of "Ltd" or "plc".This means that if a company does go insolvent, unpaid creditors cannot (generally) seek contributions from the company's shareholders and employees, even if shareholders and employees profited handsomely before a company's fortunes declined or would bear primary responsibility for the losses under ...
The Court of Appeal held that ignorance of the law was not a defence. A contravention existed so long as one ought to have known of the facts that show a dividend would contravene the law. Directors can similarly be liable for breach of duty, and so to restore the money wrongfully paid away, if they failed to take reasonable care. [78]