A fashion company that became insolvent filed an application for protection from creditors both as to itself and its controlling shareholders, contending that during this time of distress the shareholders are required to devote their full time and energy to saving the company and not to protecting their personal assets from creditors.
The Court rejected the motion and held that an order to protect the shareholders of the company will be granted only in exceptional cases, where it is for the benefit of the company, taking into account the role and function of the shareholder, its necessity and essentiality for operating the company and provided that the shareholder acted in absolute good faith and in a speckless manner as to the company. Here, the shareholders acted in trickery and concealed information from the banks as to the condition of the company and are thus not entitled to protection.