1. These issues are pursued by Professor Baird in this issue, at p. 199.
2. At p. 259.
3. Since the paper is concerned with creditor protection, net assets constitute the correct focus of concern because that will determine the level of creditor recovery in insolvency.
4. By ‘equity’, I mean the company’s value after all its debts and liabilities have been allowed for, i.e., the value of the shareholders’ economic interest in the company. This concept of ‘equity’ involves no presumption that the shareholders have provided significant legal capital to the company. Thus, shareholders in a British private company, whose shares have been issued for a nominal consideration, nevertheless will have a substantial equity in the company if its business does in fact prosper and the resulting profits are retained within the company.
5. The fact that those accumulated profits may be distributed does not fundamentally affect the argument. The company may be reduced to the situation where the shareholders have no equity in the company by unsuccessful trading or by distributions. The above argument in favour of imposing duties on directors in the vicinity of insolvency does not turn on how the threat of insolvency was brought about. However, the excessive distribution route to insolvency does justify legal controls over distributions, which all company laws contain. The debate in that area, which is dealt with in other papers presented to this conference, is whether legal capital or solvency-based controls do the better job in controlling excessive distributions.