Determining when a company is insolvent can be quite complex, so professional advice should always be sought. However, as a brief overview, a company is insolvent when it is unable to pay amounts it owes to creditors when they become due and payable.
Directors of companies are duty-bound to prevent their company from trading if it is insolvent. If a company continues to trade whilst insolvent, the director (or directors) are guilty of insolvent trading and may be liable to pay penalties. They may also be personally liable for the debts that are incurred by the company!
To pursue a claim against the director for insolvent trading, it is important to establish the following:
An insolvent trading claim against a director is limited to the amount of any unpaid debt(s) which the company incurred whilst it was insolvent. The director does not automatically become liable to satisfy all unpaid debts of the company.
Successful claims may result in a director being disqualified from managing a company, fined up to $200,000 and/or ordered to pay compensation. In some cases, criminal proceedings may also follow.
In defending a claim for insolvent trading, directors must be able to show one or more of the following:
If you are making a claim against someone for insolvent trading or you are a company director being pursued for insolvent trading, you will require professional advice with respect to this complex area of the law.
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