Insolvent Trading

Insolvent Trading

What is it?/Definition

Insolvent trading occurs when a director allows their company to incur debts at a time when it was insolvent. A claim for compensation may be made by the liquidator against that director if those debts are left unpaid when the liquidation commences. The director may be held personally liable to compensate creditors for the amount of those unpaid debts incurred from the time the company became insolvent to the date of commencement of the liquidation.

 

Who is this service for/aimed at?

A director of a company that may have an Insolvent Trading claim brought against them by a Liquidator.

 

How it works? What’s the process?

Section 588G sets out the director’s duty to prevent insolvent trading and allows the process for making a claim if that duty is breached. Directors contravene this section by allowing the company to incur the debt when they are aware that there were grounds for suspecting that the company was insolvent. Once a director has breached the duty set out in section 588G, the provisions of section 588M allow a recovery of compensation from that director. A claim is possible where the director has contravened section 588G; the creditors suffered loss or damage because of the company’s insolvency; and the unpaid debt was wholly or partly unsecured. Breaching this provision gives grounds for the liquidator to make a claim against the director. Once this breach of 588G occurs, the provisions of section 588M will allow a recovery action to be taken against that director by the liquidator.

 

When will this service be required?

When a director of a company receives a demand for Insolvent Trading from a Liquidator.

 

What are the benefits/outcomes of engaging this service?

Reduction or elimination of the amount required to be repaid by the client to a Liquidator by assisting the client to provide their defences to such a claim, or to engage an appropriately qualified Lawyer to defence them.

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