A director’s fiduciary duty is usually considered to be one of acting in good faith to promote the company’s objects and to advance its interests. This obligation, however, is displaced when insolvency proceedings begin. The interests of creditors then take precedence.
A failure to exercise commercial prudence when corporate insolvency looms may give rise to personal liability. This may happen when a director breaches section 66 of the Insolvency and Bankruptcy Code, 2016 (code). Such provision empowers the National Company Law Tribunal (NCLT), as the adjudicating authority, to fasten liability on directors for fraudulent or wrongful trading.
NCLT reinforces directors’ creditor-focused duties
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