Insolvency, under the Corporations Act, refers to a business’s inability of a company to pay off its debts, as they fall due, out of the debtor’s company resources and refers specifically to businesses and companies.
Who is a director?
A director is not just a person appointed to that role. Under the Corporations Act 2001 (Corporations Act), a person may also be a director if they are not formally appointed but act in that role, or if the directors of the company act in accordance with their instructions or wishes.
Changes to Director Duties during Insolvency
If you are a director of an insolvent company, you may not be protected from insolvency proceedings. Trading while insolvent may lead to your personal assets being seized or frozen, whilst administrators try to prove negligence or insolvent trading. In the extreme there is a possibility you may be held personally responsible for unpaid taxes and debts and could face criminal prosecution, fines and even jail time.
Directors also have the duty to keep books and adequate financial records to correctly record and explain transactions and the company’s financial position and performance. A failure of a director to take all reasonable steps to ensure a company fulfils this requirement contravenes the Corporations Act.
Consequences of insolvent trading
There are various penalties and consequences of insolvent trading, including civil penalties, compensation proceedings and criminal charges.
The Corporations Act provides some statutory defences for directors. However, directors may find it difficult to rely upon these if they have not taken steps to keep themselves informed about the company’s financial position.
If you feel you are trading whilst insolvent, you need to contact us immediately so we can consider your options before it’s too late!
Here at The Quinn Group, our team of experienced Accountants and Lawyers can help you if your business is struggling and you would like more advice on insolvency and changes to your director duties. If you would like to arrange and appointment or you would like to find out more information, please submit an online enquiry form or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166.