Activity of Corporations law

A Director in a company is a very important person and he is the one who sails a company through all storms and floods. Section 9 of the Corporation Act 2001 is an enactment that gave recognition to the position of a Director in a company  Corporation Act 2001

In the Corporation Act 2001, abundant tasks and duties are impressed on a Director, such as, duty that a director must act in good faith and in the best interest of the company, that a director has a duty to avoid any kind of conflicts of interest, that a director will not misuses the position and information of a company of which he is the director etc. there are number of duties which must be catered by a director of a company. Legal Service Commission of South Australia, 2012

Amongst various duties one important duty that must always be kept in the mind of any director, where managing director, executive or non-executive is that a company must not trade while insolvent or expected to be insolvent. This duty is captured under section 588G of the Corporation Act 2001. Tunstall I, 2014

Section 588G of the Corporation Act, 2001 is captured under Chapter 5, Part 5.7B, Division 3. Division 3 considers two important sections, that is, section 588G that deals with Director's duty to prevent insolvent trading by company and Section 588H that deals with defences available to director of the company. PWC, 2011

Section 588G of the Corporation law defines situation where a director can be hold accountable when he breaches the duty to prevent the insolvent trading of the company. An insolvent trading of a company takes place when: PWC, 2011

• A debt is incurred by a company;
• The debt is incurred by the company when the person is the director of the company;
• The company is in the position of insolvency or will get insolvent because of the occurrence of debt;
• There are reasonable grounds to assume that the director is aware that the company will become insolvent because of the occurrence of debt or a normal prudent man in the like circumstances can believe that the company will become insolvent because of the occurrence of debt;
• That the director has not taken reasonable steps to prevent the occurrence of debt which has resulted in the insolvent trading of the company

All the above circumstances together makes a company insolvent and a director faces consequences for the breach of duty that is imposed upon him under section 588G of the Corporation Act 2001.