Kinsela v RusselKinsela Pty Ltd (in liq) (1986) 4 NSWLR 722 New South Wales Court of Appela

Case Facts for Kinsela v RusselKinsela Pty Ltd (in liq) (1986):

A business was owned by the Kinsela family. The business is a funeral business that has an insurance that covers the expenses of the services provided by the company.

A regulation on the insurance provided to the business was passed on. The family was alarmed as the law can affect the business and its delicate financial status.

With this, the family decided to rent the business from the husband and wife, who were also shareholders and directors of the company, at a lower price. This was carried out by the family members, who were also the shareholders, during the time when the company business was indebted.

The company was then dissolved, and the liquidator appealed on the transfer of the lease. This was done on the grounds that the directors of the company had infringed their fiduciary duty in towards the creditors of the company.

Case Issue:

The issue is whether or not the company had breached their fiduciary duty by putting into the disadvantage side the creditors of the company.

It is also an issue if whether or not the shareholders had breached their fiduciary duty during the approval of ratification of the transaction.

Case Decision:

The court had decided that the directors had infringed their fiduciary duty on the grounds that they had caused detrimental effects to the creditors. Therefore, the ratification of the transaction which was passed by the shareholders also breached their duty towards the creditors. 

Moreover, as the companies were near to dissolution, its assets were already the assets of its creditors, and it is the duty of the directors to protect the end of the creditors.

Case Significance:

There are two significant points from the case. The first point is that when a company is nearing to be dissolved, then the fiduciary of duties of the shareholders and directors are owed to the creditors of the company.

Also, during the time when the company is nearing or on the process of insolvency, the fiduciary duties of the shareholders towards the creditors remain on the same level.