Are you a director and you’re fairly sure your company is insolvent? So are you automatically liable for all of the debts of the company? No.

Breaches of the insolvent trading laws, being section 588G, occur when a person is a director and:

  • the company is insolvent when it takes on a debt or becomes insolvent as a result of taking on a debt;
  • there are reasonable grounds for suspecting insolvency or the potential for insolvency;
  • the directors were aware of, or a reasonable person in a similar position, would have been aware of the insolvency or potential insolvency;
  • the director’s failure to prevent the company acquiring a debt is dishonest.

A holding company will be liable for debts incurred by insolvent subsidiaries where the directors of the holding company think there are reasonable grounds for suspecting insolvency or the potential for insolvency as a result of taking on a debt.  The onus of proof is on the person trying to make a director liable.

For a director this is a complex area of the law. Why not call one of our experts for CONFIDENTIAL AND FREE ADVICE on your particular circumstances.

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