Ben McTaggart
In an increasingly tough economic climate, ASIC has warned that it intends to step up efforts to monitor potentially insolvent companies and ensure that directors take appropriate steps in circumstances where a company becomes or is likely to become insolvent.
The recent appointment of Michael Dwyer as commissioner of ASIC has coincided with an ASIC crack down on insolvent trading and reinforced the risk of directors being held personally liable for allowing a company to trade while insolvent.
The Corporations Act places a duty on directors of a company to prevent insolvent trading and the penalties for breaching this duty are severe. Directors may have some protection under the few defences available under section 588H of the Corporations Act, however these are limited in number and scope and should not be relied on by directors to absolve themselves of the duty to remain alert to the risk of a company becoming insolvent.
There are potentially a number of ways to mitigate the risk of insolvent trading to both the company and the directors. Directors concerned about risk of their company trading while insolvent, their duty to prevent insolvent trading or their exposure to liability for insolvent trading particularly in light of the recent comments made by ASIC should seek professional advice and assistance as early as possible.
Australia's Best Value Professional Services Firm - 2005 and 2006 BRW-St.George Client Choice Awards
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
