Insolvent Trading – Go to Jail – Do Not Pass Go – Do Not Collect $873,997
It can happen – recently a director was sentenced to 12 months prison for Insolvent Trading. A director, Ms Kuaye, received that sentence for Trading While Insolvent and incurring debts of $112,000. It was part of an overall sentence of three years – she also misappropriated $873,997. There are a few extra facts that put the sentence into context and suggest she might have gotten off lightly. Here is some extra information:
- The director had a company that tendered for projects in developing regions which were funded by organisations whose goals included poverty reduction;
- ASIC alleged that funds made available to the company were misappropriated and that it traded while insolvent;
- This all happened in 2003 and 2004 and ASIC began an action in 2006;
- ASIC also alleged that Ms Kauye filed a false Affidavit in defending a Statutory Demand;
- In the end she pleaded guilty.
- She was banned from acting as a director for 2 years in 2007 (which means she can now act as a director – crikey!)
So she traded while insolvent, took a lot of money that was earmarked for charity and then lied about it to the Court. Three years sounds fairly mild.
The fact remains that for a director concerned about insolvent trading they should be worried, but the larger threat is from civil actions for recovery of dollars. They are much more common than criminal actions. Also, those actions are often settled and so are not publicised.
We’ve got some handy tools on the website to help directors worried about Insolvent Trading. Very commonly a director just isn’t sure if their company is insolvent so we’ve put together a handy tick-a-box Insolvency Test that can help answer that question.