The Insolvent Trading - The Law
Section 588G of the Corporations Act 2001 makes directors responsible for ensuring that their company does not trade while insolvent. This is in addition to their general duties to act with care and diligence, in good faith, in the best interests of the company and not to improperly use their position or information received for personal gain. To fulfil these duties and responsibilities, directors must closely monitor their organisation's financial situation, question and challenge management and act when they suspect problems are occurring.
Insolvent trading leaves a director open to civil and possibly criminal penalties as well as opening the door to personally liable. The onus is on directors to ensure they regularly receive all necessary financial and management information, read it, seek professional advice when issues arise, keep adequate records and be active at board meetings.