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CORPORATIONS ACT 2001

CHAPTER 5 - EXTERNAL ADMINISTRATION  

PART 5.7B - RECOVERING PROPERTY OR COMPENSATION FOR THE BENEFIT OF CREDITORS OF INSOLVENT COMPANY  

Division 3 - Director's duty to prevent insolvent trading  

SECTION 588G  DIRECTOR'S DUTY TO PREVENT INSOLVENT TRADING BY COMPANY  

588G(1)  [Application]  


This section applies if:


(a) a person is a director of a company at the time when the company incurs a debt; and


(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and


(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and


(d) that time is at or after the commencement of this Act.

588G(1A)  [When debt incurred]  


For the purposes of this section, if a company takes action set out in column 2 of the following table, it incurs a debt at the time set out in column 3.
When debts are incurred[operative table]
 Action of companyWhen debt is incurred
1paying a dividendwhen the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared
2making a reduction of share capital to which Division 1 of Part 2J.1 applies (other than a reduction that consists only of the cancellation of a share or shares for no consideration)when the reduction takes effect
3buying back shares (even if the consideration is not a sum certain in money)when the buy-back agreement is entered into
4redeeming redeemable preference shares that are redeemable at its optionwhen the company exercises the option
5issuing redeemable preference shares that are redeemable otherwise than at its optionwhen the shares are issued
6financially assisting a person to acquire shares (or units of shares) in itself or a holding companywhen the agreement to provide the assistance is entered into or, if there is no agreement, when the assistance is provided
7entering into an uncommercial transaction (within the meaning of section 588FB) other than one that a court orders, or a prescribed agency directs, the company to enter intowhen the transaction is entered into

588G(2)  [Failure to prevent incurring of debt]  


By failing to prevent the company from incurring the debt, the person contravenes this section if:


(a) the person is aware at that time that there are such grounds for so suspecting; or


(b) a reasonable person in a like position in a company in the company's circumstances would be so aware.

Note: This subsection is a civil penalty provision (see subsection 1317E(1)).

588G(3)  [Insolvent trading offence]  


A person commits an offence if:


(a) a company incurs a debt at a particular time; and
 View history reference


(aa) at that time, a person is a director of the company; and
 View history reference


(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and


(c) the person suspected at the time when the company incurred the debt that the company was insolvent or would become insolvent as a result of incurring that debt or other debts (as in paragraph (1)(b)); and


(d) the person's failure to prevent the company incurring the debt was dishonest.

588G(3A)  [Absolute liability offence]  

 View history reference

For the purposes of an offence based on subsection (3), absolute liability applies to paragraph (3)(a).

Note: For absolute liability, see section 6.2 of the Criminal Code.

588G(3B)  [Strict liability offence]  

 View history reference

For the purposes of an offence based on subsection (3), strict liability applies to paragraphs (3)(aa) and (b).

Note: For strict liability, see section 6.1 of the Criminal Code.

588G(4)  [Civil penalty provisions]  


The provisions of Division 4 of this Part are additional to, and do not derogate from, Part 9.4B as it applies in relation to a contravention of this section.

 



This information is provided by CCH Australia Limited. View the disclaimer and notice of copyright.
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