Question

Tanked Pty Ltd (Tanked) has four directors who have been found guilty of insolvent trading under s 588G of the Corporations Act 2001 (Cth). Holly, one of the directors, believes she is not liable as she relied on a financial report prepared by the accounting intern that showed the financial situation of Tanked was good. Bob also believes he is not liable as he stood down from management some months earlier to assist his unwell wife. Richmond also believes he is not liable as he didn’t read the financial report from the Chief Financial Officer which showed Tanked was heading towards insolvency.

Advise Holly, Bob and Richmond as to what defences they might be able to raise to avoid liability for insolvent trading.

Answer 1

Answer:

Section 588G of Director duty to prevent insovent trading by company apply in following cases:

(a) a person is a director of a company at the time when the company incurs a debt; and

(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d) that time is at or after the commencement of this Act.

588G(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a) the person is aware at that time that there are such grounds for so suspecting; or

(b) a reasonable person in a like position in a company in the company’s circumstances would be so aware.

As per law I advice the concerend director as follow:

1. Advice to Holly:

During Tanked insolvancy Mrs Holly is the director of the company and just relied on financial position of the company is not the relevent fact to free from her liabilities toward the company. She is the guity as per law.

2. Advice To Bob.

Bob is fulfill all condition as mentioned in section 588G (1) and not comply the conditione mentioned in section 588G (2) of the act. Just stood dawn to the management due to personal problem, for some time, does not mean thet he has no guilty of insolvancy.

He is not free from the liabilty of guilty of trading for the Company.

3. Advice to Richmond:

Here,Richmond also fall under setion 588G (1) and not satisfied the secttion 588G (2) of the act.

Not reading financial position of Tanked, is not an relevent fact that free a director from his liabilty toward the organisation. Still he has the all liabilty to the Company.