Restructuring & Insolvency

Insolvent trading claims against directors

Directors have a responsibility to prevent their company from trading whilst insolvent. When directors allow their company to continue incurring debts whilst insolvent, they can become personally liable for those debts.

Insolvent trading is when directors allow their company to incur debts when the company is insolvent. Section 95A of the Corporations Act 2001 (the Act) states that:

  1. A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
  2. A person who is not solvent is insolvent.

For the purposes of section 95A, a person also means a company.

Insolvent trading is against the law. ...

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