July 30, 2008

LIABILITIES OF INSOLVENT COMPANY DIRECTORS: IMPLICATIONS FOR

 

 

 

1.0  Title

The working title of the research is initially drafted as – Liabilities of Insolvent Company Directors: Implications for the Vietnamese Insolvency Law

2.0  Background of the Study

Anyone who controls the company, and is responsible for the direction of the company or tells the directors what to do are considered to be directors of a company (or the shadow director). These are not only the registered directors but also include a director in name only such as the director's spouses and someone who has been appointed a director for the reason of having their name on the board. Even before the company experience financial dilemmas, directors have both legal and financial risks. Basically, directors have a duty to act in the best interest of the company and its shareholders. But when the company is deemed to become insolvent directors are expected to act in a legal duty to protect the interests of the creditors instead of the shareholders. According to the law, the company is insolvent when either it cannot afford to pay its debts as they fall due or when its liabilities exceed its assets. As such, insolvent companies as well as the directors must now function its basic purpose which is to get the best return for the creditors (www.busines-lawfirm.co.uk).

There are three cases directors are to be held liable. First is through wrongful trading or when the company continues to trade or enter into contracts after knowing that there was no reasonable prospect of avoiding insolvent liquidation. This case, however, is acceptable unless the director(s) can prove that the actions taken are for the purpose of minimizing the potential loss to creditors. The second is by means of fraudulent trading. It happens when directors carry on business with the intention to defraud creditors or for any other fraudulent purposes. Doing transactions at an under value is the third one. This happens when the company has transferred assets for significantly less than their market value.  Once a company is insolvent, the directors would have to take a different role under the legal systems.

In United Kingdom, the director's liabilities are outlined under the Insolvency Act 1986. The US Insolvency Law, however, is supported by the Bankruptcy Code and the Bankruptcy Reform Act whereby detailed rules are broadly codified. In Canada, the Bankruptcy and Insolvency Act regulates the conduct of directors of insolvent companies. Vietnam's insolvency law, on the other hand, is perceived to have been Westernized. The Bankruptcy Law which was drafted in 2004 purports on harmonizing the bankruptcy law with the international protocols and treaties, in improving the efficiency of the bankruptcy procedures, in encouraging more insolvent enterprises to use the law in resolving disputes, in allowing parties to participate in bankruptcy procedures and in giving courts more flexibility in dealing with insolvent business including the changing liabilities of the directors.   

3.0  Statement of the Problem

The problem that will be addressed in this research is how the liabilities of insolvent company directors are regulated by the Vietnamese insolvency law and how it differs with other bankruptcy laws such as the UK, US and Canada. The following research questions will be answered.

1)     What the liabilities of the directors of an insolvent company? On what specific sections of the Bankruptcy Law 1994 these liabilities are outlined?

2)     How do these sections devoted to the liabilities of the directors of an insolvent company differ with that of UK, US and Canada?

3)     Why are they different? What the reasons for these differences?

4)     Provided that the bankruptcy proceedings are perceived as economic cases, how does the Bankruptcy Law 1994 handle the changing liabilities of the directors?   

5)     How does the Bankruptcy Law 1994 affect the formal corporate rescue process of insolvent companies? What are the liabilities of the directors during the rescue process?

4.0  Objectives of the Study

The main of the research is to explore the extent of differences of the Bankruptcy Law 1994 when it comes to the liabilities of the directors of the insolvent company. In lieu with this, the following specific objectives will be accomplished.

§         To determine the liabilities of the directors of an insolvent company in Vietnamese context

§         To distinguish how these liabilities are regulated under the Bankruptcy Law 1994

§         To compare these regulations to the insolvency law of UK, US and Canada

§         To evaluate how the changing liabilities of insolvent company directors are regulated under the Bankruptcy Law 1994

§         To analyse the degree to which the Bankruptcy Law 1994 support the changing liabilities of the directors of the insolvent companies

5.0  Research Methodology

The study will explore the problem in an interpretivist view, using exploratory research strategy because it aims to know more about the concept of bonded warehouses. Exploratory research will enable the study to look at the problem in both descriptive and exploratory manner. It will look into the problem by exploring the views of different sets of respondents, as well as by exploring different literatures related with the study. Towards the latter part of my research, I would also be using a Comparative Design, to compare the specific provisions for the liabilities of the directors. This qualitative study will conduct primary and secondary research.  

The primary source of data will come from the researcher-made questionnaire and interview questions. The primary data frequently gives the detailed definitions of terms and statistical units used in the study. These are usually broken down into finer classifications. The secondary sources of data, on the other hand, will come from published articles, finance and law journals, theses and related studies on insolvency law and the liabilities of directors. Acquiring secondary data are more convenient to use because they are already condensed and organized. Moreover, analysis and interpretation are done more easily.

All data will be evaluated using the latest SPSS software. Data will be analysed using the frequency analysis. The following will be the formula:

Percentage – will be used to determine the magnitude of the responses.

            n

% = -------- x 100        ;           n – number of responses

            N                                 N – total number of respondents

 

Weighted Mean

            f1x1 + f2x2  + f3x3 + f4x4  + f5x5

x = ---------------------------------------------  ;

                        xt

where:             f – weight given to each response

                        x – number of responses

                        xt – total number of responses

 

The research will be presented in written form with the addition of data charts which will present the findings. Pie charts and network charts will be needed to illustrate some of the analyzed data. This cannot be confirmed, however, until the research data have been analyzed.

 

 

 

 

 


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