Directors’ Duties in Relation to Creditor Protection in Developing Countries using a Comparative Study of United Kingdom (UK) and Zambia

Since the inception of limited liability, the risk falling on creditors increased with the implication of their claims being limited to company assets only. This created the need for mechanisms for creditor protection against risk of loss because doing business with an incorporated company became risky. The presence of limited liability meant that it was only a matter of time before the concept could be abused for externalization of risk by companies. Both company and insolvency law has failed to provide an effective mechanism for the behaviour of directors which can effectively improve creditor protection. After codification, directors are to act in good faith to promote the success of the company for the benefit of the members and in financial distress, they are to consider the interests of creditors. There is a dearth of literature in terms of creditor protection even though they are a source of corporate finance especially in developing countries like Zambia. The study analysed directors’ duties in relation to creditor protection in developing countries using a comparative approach of UK and Zambia. The shifting of the duty from the focus of shareholders to creditors was found to have uncertainties which impede creditor protection. While in the UK the duty has interpretation and enforcement challenges, in Zambia this duty is non-existent. Empirical findings showed evidence of neglect for creditors through impractical provisions of law both in principle and in practice. The research makes a contribution to knowledge on the need to improve creditor protection within company law in the UK especially in Zambia. Directors in Zambia don’t seem to understand what they are doing under common law because problems such as unawareness, lack of understanding and incompetence were found. Likewise, even though duties are legislated in the UK, they are surrounded by uncertainties specifically section 172(3) of the Companies Act 2006. These uncertainties relate to the effective time when directors are supposed to start considering creditors’ interests and what it means to consider creditors’ interests. Corporate governance needs to be strengthened in order to complement and enhance implementation of law by directors. This research is significant because it focuses on directors’ duties in relation to creditor protection in developing countries where less academic attention has been given especially Zambia compared to developed countries.