Explain the importance of director’s duty to prevent insolvent trading? Including the Introduction, discussion and the...

Explain the importance of director’s duty to prevent insolvent trading?

Including the Introduction, discussion and the conclusions.

Expert Solution

Trading a company always has commercial risks. The success or failure of a company can often be subject to risks beyond the control of the company itself and its directors, including risks caused by the economic changes we are currently experiencing.

The best way to ensure that an insolvent trading claim is not brought against a director is for the director to seek early accounting and legal advice if the company is finding it difficult to pay its debts as and when they fall due. While even the most prudent and well advised director can still be at risk of insolvent trading, dealing with the issue "head on" will certainly minimise the risks faced.

The Corporations Act imposes a positive duty on directors to prevent insolvent trading. This duty seeks to balance two often competing interests: the protection of creditors and the liability of directors

The current law surrounding insolvent trading imposes strict obligations on directors. It is important to obtain professional legal advice as soon as possible so that a director can understand the best way forward and avoid the significant consequences of trading a company while insolvent

ekkarill92 answered 2 years ago

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