Insolvent Trading: Who´s Liable?

Australian directors have long lived in the shadow of insolvent trading. However, although directors' liability for insolvent trading is well-known, it's not so widely known that that liability can extend to people and organisations who have never been appointed to the board.

There are two categories of "third party" who can be made liable for a company's insolvent trading debts:

• holding companies

• shadow directors.

A holding company will most usually be a company that holds more than half of the voting shares in a company. However, actions against holding companies are rare, for obvious reasons: a solvent holding company would be reluctant to allow a subsidiary to go into an insolvent winding up, while an insolvent holding company provides an unattractive subject for a recovery action.