chapter  9
26 Pages

THE DISQUALIFICATION OF COMPANY DIRECTORS IN THE MANAGEMENT OF INSOLVENT COMPANIES

1 INTRODUCTION

The principle of law established in Salomon v A Salomon Ltd1 deems that a company registered with a limited liability status is, as a separate legal entity, prima facie responsible for its own actions and liable for its own debts. At common law, other than where a company is incorporated to impugn an existing contractual obligation or where it is otherwise considered a sham or agent of another company,2 the principle in Salomon will prevail. Accordingly, in pursuing business activity through the medium of a limited liability company, the company’s shareholders and directors will prima facie be shielded from the incursion of personal liability should the enterprise fail.3 The medium of the limited liability company therefore minimises risk and encourages entrepreneurs to invest capital in business projects. The said investment also serves to benefit the public interest in so far as it stimulates the growth and prosperity of the national economy.