Trading while insolvent

[meh_too]

Does anyone know anything about this?  I have a customer who has gone into voluntary administration and the administrators are looking to see if he was trading while insolvent.

I stopped counting at $25m in debt. 

Is it a criminal charge and could he end up in jail?  He has hurt many small family businesses

[azureline**]

It can be a criminal charge but they would have to prove he was being dishonest.

[lyndal1838]

Yes, it can be a criminal charge.  The Administrators will have to prove that he continued to trade whilst knowing that the business could not meet it's debts as and when they became due.

With a huge amount involved I would say it will not be too hard to prove.

And there is also Director's Liability involved....the Administrators can look to him to cover the debts of the business.

[meh_too]

Thanks for responding - I have done some research and concluded pretty much the same.

He has about $5.5  owed to him, which could be the subject of court challenges.

Oh how the mighty have fallen

[fiestas*girl]

um....for a director ignorance is no defence...he will be charged..a directors duty is to make himself aware of the companies financial stuation. Saying ' i didnt know' wont do him any good.

[monman12]

"Section 588G of the Corporations Act states that a director must not allow a company to continue to trade and incur debt at a time when;

• a company is insolvent
• a company is likely to become insolvent as a consequence of incurring a debt
• there are reasonable grounds to suspect the company is or will become insolvent

If a director fails to prevent a company incurring a debt at a time when a reasonable person would have concluded the company was, or was likely to become insolvent, they are considered to have breached the Corporations Act.

Penalties for Trading while insolvent – the consequences

The penalties for insolvent trading may include civil and potentially criminal sanction."

FG, I think the Libs have taken note of the past  ALP final week costings release during their  2007/2010 election campaigns.

[acacia_pycnantha]

Trading in solvents, particularly in the vicinity of school grounds, is likely to land you with a hefty jail term. Just say No. 😉

[lyndal1838]

---

@fiestas*girl wrote:

um....for a director ignorance is no defence...he will be charged..a directors duty is to make himself aware of the companies financial stuation. Saying ' i didnt know' wont do him any good.

---

I can not see where there is any question of a director using ignorance as a defence to anything.

Trading while insolvent has nothing to do with whether the director knew or did not know of the financial position of the company.  All the Administrator has to do is PROVE that the company was trading while insolvent, not that the director knew about it.

[monman12]

L1838: "Trading while insolvent has nothing to do with whether the director knew or did not know of the financial position of the company.  All the Administrator has to do is PROVE that the company was trading while insolvent, not that the director knew about it. "

Actually a director, even without  any  degree of mens rea  apropos the insolvency,  whilst in the hot seat (directors chair) ,  does have some possible defences.

The Corporations Act provides some statutory defences for directors.
There will be a defense if:

    (a) the director had reasonable grounds to expect that the company was solvent;
    (b) a competent person was producing adequate information that would lead to a belief that the company was solvent;
    (c) the director had a good reason for not taking part in the management of the company at the relevant time; or
    (d) the director took all reasonable steps to stop the company from incurring the debt.

However, directors may find it difficult to rely upon these if they have not taken steps to keep themselves informed about the company’s financial position.

nɥºɾ