Companies are governed by the Corporations Act 2001. Most directors of companies are aware that the company must be able to demonstrate that it can pay its debts “as and when they fall due.” This means that the company must be able to discharge its creditors on a regular basis. Where a company has difficulties in paying its regular debts, such as rent and other periodic debts, an examination of the company accounts should be made to ensure that it is trading solvently.
There are strict directors’ duties in relation to ensuring that a company meets statutory requirements and also does not incur debts when there is no prospect of repaying the debt in the short term. In addition, there are rules in relation to divesting assets from a company to a third party whilst a company is not trading solvently.
The principles behind insolvent trading can be extremely complex, and we strongly recommend that if you are a director of a company and have concerns about insolvency, you should promptly obtain legal advice in relation to this area of law.
Directors can have personal liability: Where a director suspects (or should suspect) that there may be a solvency problem but does not take prompt action, the director can be held personally liable for the debts of the company, and the director’s personal assets can be at risk. It is therefore very important that early legal advice is taken. We can provide you with an obligation free consultation and preliminary advice in relation to potential insolvency.
You can read more about Directors’ duties and trading whilst insolvent here.
Please call Ashlee Berry today on 02 6280 8899 to arrange an appointment or to discuss your needs.