Insolvent Trading
Directors often ask about "Insolvent Trading" or "Trading While Insolvent" provisions. The simple explanation is that if a company is insolvent and the directors continue to incur new liabilities, then the directors can be personally liable for the new debts. A range of options is available to directors who suspect insolvency, but most importantly you need to act if you suspect your company is insolvent.
How do I know if my Company is Insolvent?
Figuring out if your company is insolvent is critical because there are many legal consequences that can follow if you get it wrong.
The Corporations Act tells us that the overriding question a director must answer is:
Is the company able to pay all of its debts as and when they become due and payable?
Usually the answer to this question is not easy! Dissolve is here to help. Try our simple online assessment test: Is My Company Insolvent? Test 1 on the right side of this page.
What do I do If my Company is insolvent?
- Act now to avoid insolvent trading penalties.
- Consider if your company can be restructured or if it needs to be liquidated. Try our online test Ask IRA - Test 2 on the right side of this page.
Whilst the overriding principle is easy to understand, this is quite a complicated area of the law. Because it is so important for directors, we have gone into quite a bit of detail in the pages below:
- The Insolvent Trading Law
- Legal Definition of Solvency
- Breaches of Insolvent Trading Laws
- Defences to insolvent trading actions
- Penalties
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