Breaches of Insolvent Trading Laws
The Corporations Act says that a breach of Insolvent Trading laws occurs 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; and
- the director's failure to prevent the company acquiring a debt is dishonest.
Directors of a parent company should also be wary of an insolvent subsidiary. 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.
If you are concerned that your company may be trading while insolvent you should visit our sister site at Restructuring Works where you can do a simple test, Is my company insolvent? Or just CALL US NOW and discuss the problem with one of our experts.