International Law

ASIC guide on insolvent trading

By David Jacobson

ASIC has released Regulatory Guide 217 Duty to prevent insolvent trading: Guide for directors (RG 217) to assist directors to understand and comply with their duty under the Corporations Act 2001 to prevent insolvent trading.

Section 588G of the Corporations Act requires a director of a company to prevent the company from incurring a debt if the company is insolvent, or if the company will become insolvent by incurring the debt or a range of debts including the debt.

The four key principles which ASIC considers directors should follow to meet their obligation to prevent insolvent trading are:

• keep themselves informed about the company?s financial position and affairs;
• regularly assess the company?s solvency and investigate financial difficulties immediately;
• obtain appropriate professional advice to help address the company?s financial difficulties where necessary; and
• consider and act in a timely manner on the advice.

RG 217 also details factors and evidence which ASIC will consider when deciding to bring proceedings against a director for allowing a company to trade while insolvent (including criminal proceedings and proceedings to recover compensation for loss resulting from insolvent trading).

RG 217 contains an appendix setting out indicators of potential insolvency.

ASIC has made clear that RG 217 only sets out its intended policy on this issue and in no way affects any action that may be taken by creditors or a liquidator against directors who may have traded while insolvent.

Curiously the list of cases referred to in RG 217 does not include Hall v Poolman.

Full post as published by Australian Regulatory Compliance Review on July 29, 2010 (boomark / email).