Directors Under Fire: Defending Insolvent Trading Claims

The purpose of this paper is to provide a very brief overview of the law relating to directors' liability for insolvent trading and, more importantly, a practical guide to defending proceedings brought against a director for such a claim. Hopefully, the paper will inform directors of some of the important issues that arise in the defence of an insolvent trading claim.

The Overview

Directors of a company are under a statutory duty not to incur debts whilst a company is insolvent or incurring a debt that makes the company insolvent. The duty is imposed by section 588G of the Corporations Act (Cth). That section provides that a director breaches the section if, whilst he or she is a director, the company incurs a debt and the company is insolvent at that time or becomes insolvent by incurring the debt provided that there are reasonable grounds for suspecting that the company is insolvent or will become insolvent.