The Company Act 1993

Commercial and corporation law

The Company Act 1993 governed the laws and the regulation with respect to the company,
shareholders and directors. The company is controlled and managed by the directors who are
selected by the shareholders of the company. In the cited Act, there are several duties of the
directors is defined which is mandatory to be complied by all the directors (Fleming, 2017).
This Act requires the application of reasonable care while making decision. For example
solvency test is applied for making decision such as distribution of the dividend, buyback of the
shares and so on. It is the duty of the director to perform the solvency test. The main objective of
the solvency test is to determine whether the company is able to meet its liability as and when the
liability arises. If the director did not perform the activity by due care and diligence, then it leads
to the personal liability on the director. The liability depends on the participation in the decision
by the director.
According to section 138 of the Company Act 1993, the director can consider the advice of the
expert and the professional only if they perform in good trust.
According to section 56(3) of the Company Act 1993, which is related with recovery of
distribution stated that if the failure to take the satisfying action to prevent the distribution and if
the director terminated after distribution, but before the distribution held the position as a
director and satisfied that the after the distribution the company will be solvent, then the director
will be personally liable for the debt to the company. The amount of the liability of the director is
up to the amount which was not recovered from the shareholders. Therefore it is the duty of the
director to perform the solvency test to eliminate the personal risk.