Insolvent Trading And The Credit Crunch

Many businesses are currently facing financial pressure, either directly or indirectly because of the credit crunch. This can lead to concerns about solvency. The immediate issue which may spring to mind for directors is their potential personal liability, especially for insolvent trading.

Directors, or persons who could be deemed to be directors, are in danger where:

• the company incurs a debt;

• the company is insolvent at that time or becomes insolvent by incurring that debt; and

• when that debt is incurred, there are reasonable grounds for suspecting that the company is insolvent or would become insolvent.

Who is a director?

A director may not only be a person registered as a director on the ASIC register, but may also include a person: