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Insolvent Trading:

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Insolvent trading is prohibited under section 588G of the Corporations Act 2001 (Cth). That section states that a director is in breach where that director believes that there are grounds for suspecting that the company is insolvent, or where a reasonable person in the director’s position would be so aware. In broad terms, an offence is committed in a situation where a debt is incurred by the company while the director was aware of the company’s insolvency.

In situations where a creditor’s debt was partially or wholly secured, and where there has been loss resulting from insolvent trading, that creditor will be able to recover the amount of loss under section 588M. Recovery can be made from the director himself under subsections 588M(2) by the liquidator, or under subsection 588M(3) by the creditor himself. However, subsection 588M(4) sets a limitation of six years for such actions, starting from the date of the winding up.

Under sections 588FC, a so-called “insolvent transaction” is held to be one where the transaction creates an unfair preference or is an uncommercial transaction. Under section 588FH, the liquidator will have the power to recover any payments made under an insolvent transaction, as defined in section 588FC.

If you suspect that your company is trading while insolvent, this may be a very serious matter that might impact on your liabilities directly and personally. It is strongly encouraged that you seek legal assistance from a corporations lawyer who can guide you through this process and secure and protect your interests to the extent possible under the law.

Our Lawyers are familiar with litigation and proceedings involving insolvent trading, having acted for directors, creditors and other company stakeholders in the past. 

Whether you are a Director of a Company and wish to seek legal advice about insolvent trading, or otherwise a person affected by the conduct of a Director who you believe has caused the company to engage in insolvent trading and wish to seek legal advice about remedies and potential action that might be available for you to recover your damages or losses, Navado Lawyers & Solicitors can assist by properly assessing and considering all of the circumstances and the factual matrix, before providing you with specific legal advice. 

If you need legal assistance in relation to an insolvent trading matter, you may wish to speak to a Bankruptcy & Insolvency Solicitor at Navado Lawyers & Solicitors. To make an appointment, please contact us by telephone on (02) 9233 4048 or email to info@navado.com.au.




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