Directors have particular responsibilities in situations where the company is unable to pay its debts, when the company is placed in external administration, receivership, under official management or in liquidation or where a compromise or arrangement is entered into with its creditors. These include:
- a duty to prevent insolvent trading by the company [s 588G]. Directors who breach this duty may find themselves subject to Corporations Act 2001 (Cth) the civil penalty provisions of the . In some cases criminal liability may also arise. Directors allow a company to incur a debt which would make it insolvent or who fail to prevent an insolvent company from incurring a debt may find themselves civilly liable for the debt. A director's civil liability to pay the debt needs to be proved on the balance of probabilities. A director has a defence if it is proved that when the debt was incurred, the director had reasonable grounds to expect and did expect that the company would be able to pay all its debts as and when they became due.
- duties to assist external administrators by providing a report as to affairs and books and records of the company and other information as requested. Failure to comply with these requirements may be an offence under various provisions of Part 5.8 of the Corporations Act 2001(Cth) depending on the circumstances, including s 590 which makes it an offence to fail to deliver up property of the company or to fraudulently conceal property or a debt due to the company or to fraudulently dispose of property.
- Fraudulent incurring of debts or entering into a contract for the purpose of defrauding creditors is an offence [s 592]. The court may order the person to be personally responsible for payment of the debt [s 593].
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