ABSTRACT
A major shortcoming of the fraud theory is that it places liability for share payment on the shareholders when, in fact, it is the corporation that makes the representation about the paid-up share capital. Here, the law simply makes out a presumption of shareholder liability and does not even require the creditor to show that the shareholders made the representation which the creditor then relied upon. Despite these anomalies, it is clear that, under the fraud theory, liability of the shareholders crystallises only when the company becomes insolvent and when a creditor who has extended value after the shares have been issued institutes proceedings.11
