Insolvent Trading

Directors should stop a company from incurring a debt that it is not able to pay. If directors recklessly incur debts they may have to compensate those creditors for the losses they have incurred due to the breach of duty of the directors.

Traditionally the only way to avoid this outcome, was for the directors to appoint a Voluntary Administrator, or a Liquidator.

However recent changes to the Corporations Act called “Safe Harbour” provisions, provide a mechanism for directors to maintain control of their company, in circumstances that may previously have been trading while insolvent. However formalities are required, so please call us so we can help you make use of the very beneficial provisions.

If the liquidator decides not to take action against the directors, individual or groups of creditors may commence their own actions. Creditors may apply to the liquidator for consent six months after the liquidation.

In response to the Covid 19 crisis, the Federal Government have effectively eliminated the prohibition on insolvent trading, until 30 September 2020.  However safe harbour provisions should still be followed. Please call us if you find your self in a position of insolvency. Also be alert; your customers may now be permitted to trade  while insolvent for longer than before, running up a lot more debts, and taking good businesses, like yours with them when they go down. Credit control and debtor management is now more critical than ever.  Call us now to advise, and assist in dealing with recalcitrant debtors.

Call Simon Watson today on +61 7 3186 6666 or email for any enquiries.

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