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ARTICLE · 18 MARCH 2012

Insolvent Trading...? Don't go there.

Swaab Attorneys
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ASIC has launched legal action against the directors of Kleenmaid for alleged insolvent trading and fraud.

AustraliaCorporate/Commercial Law
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DIRECTOR'S DUTY TO AVOID INSOLVENT TRADING

Section 588G of the Corporations Act 2001 imposes liability on a company director:

  1. who allows a company to incur a debt when the company is insolvent, or becomes insolvent by incurring the debt; and
  2. who suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt; and
  3. whose failure to prevent the company from incurring the debt was due to dishonesty.

The duty to prevent a company from insolvent trading not only applies to persons who are formally or validly appointed as director but also to persons who act in the position of director, or in accordance with whose instructions or wishes the company's directors are accustomed to act.

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