ASIC Insolvent Trading Crack Down: Are you at Risk?

Ben McTaggart

In an increasingly tough economic climate, ASIC has warned that it intends to step up efforts to monitor potentially insolvent companies and ensure that directors take appropriate steps in circumstances where a company becomes or is likely to become insolvent.

The recent appointment of Michael Dwyer as commissioner of ASIC has coincided with an ASIC crack down on insolvent trading and reinforced the risk of directors being held personally liable for allowing a company to trade while insolvent.

The Corporations Act places a duty on directors of a company to prevent insolvent trading and the penalties for breaching this duty are severe. Directors may have some protection under the few defences available under section 588H of the Corporations Act, however these are limited in number and scope and should not be relied on by directors to absolve themselves of the duty to remain alert to the risk of a company becoming insolvent.