According to recently published statistics over 5,400 directors were reported to ASIC in the 2013/14 financial year on the grounds that they allowed a company of which they were a director to incur debts while it was unable to pay those debts (in other words that they engaged in insolvent trading).

The prohibition on engaging in insolvent trading is one of the cornerstones of our insolvency system. On one analysis allowing a company to incur liabilities it cannot pay could be considered a form of fraud. The threat that directors may face prosecution for insolvent trading is one that is often employed to convince directors to (sometimes unnecessarily) hand over control of their company to an insolvency practitioner.

For more information on insolvent trading contact Simon Gallant.