Every director of an Australian company is under a legal duty to prevent the company incurring a debt when the company is insolvent (or where that debt will cause the company to become insolvent).
The Australian Securities and Investments Commission's (ASIC) new Regulatory Guide sets out four key principles which directors should follow to meet their obligation to prevent insolvent trading.
The Regulatory Guide also sets out ASIC's approach to assessing whether a director has breached their duty.
Background
Section 588G of the Corporations Act 2001 (Cth) imposes a positive duty on directors of a company to prevent insolvent trading. Due to the economic downturn, the Australian Securities and Investments Commission (ASIC) believed the market, which includes directors and professional advisors, would benefit from clarification as to what factors ASIC considers prior to commencing an investigation into insolvent trading.
Key Points: An administrator of a deed of company arrangement has been allowed to sell the company over a shareholder's objections.
The GFC has seen a significant rise in the number of corporate insolvencies.[1]
Many of those insolvencies have been the result of tighter credit, rather than a collapse of the company's business. It's no surprise, therefore, that there is a major appetite for the acquisition of distressed businesses and companies.
Key Points: All companies, regardless of their size or solvency, must ensure that they have appropriate systems for dealing with statutory demands.
In my last article, I looked at the use of statutory demands. Time now to go through the looking glass and examine the impact of demands on the companies which receive them.
First, a brief recap …
Important Features of this Judgment
- A Pt X Deed may create an equitable assignment of the rights, such that obligations continue after the Deed has come to an end.
- The Trustee of the Part X Deed of Arrangement can continue the proceedings initiated against One.Tel, despite the Deed coming to an end.
- Serves as a reminder that the enforceability of the debt does notaffect a debtor’s liability.
Facts
The Australian Securities and Investments Commission (ASIC) has released Regulatory Guide 217 (RG 217) to assist directors in understanding and complying with their duty to prevent insolvent trading under the Corporations Act 2001 (Cth) (the Act). It should be noted from the outset that ASIC regulatory guides indicate ASIC’s policy on specific issues, they do not have legislative force or constitute legal advice. Insolvent trading involves complex legal and accounting issues and it is therefore recommended that you seek professional advice to find out how the Act may apply to you.
In brief
On 14 September 2010, the Senate Economics References Committee (Committee) released a report recommending reforms to Australia’s current insolvency regime (Report) in the following key areas:
- the regulation of the insolvency regime
- the registration of insolvency practitioners, and
- the remuneration of insolvency practitioners.
Implications
If the recommendations contained in the Report are enacted in legislation, stakeholders may be affected in the following ways:
The Government has reintroduced the Corporations Amendment (Sons of Gwalia) Bill 2010 into Parliament to give effect to the Government's decision to reverse the High Court's decision in Sons of Gwalia v Margaretic.