Insolvent Trading Claims
Claims Are Defensible,
Not Inevitable
✔ Understanding, non-judgemental advice.
✔ FREE 24-hour hotline.
✔ Safe Harbour and Statutory Defences.
✔ Protect your reputation and assets.
✔ Defending against Liquidator claims.
What Every Director Fears … Facing an Insolvent Trading Claim
As a director, having your company in financial distress is serious and worrying enough. But when an Insolvent Trading claim is made, your stress and fear are instantly elevated. Company troubles have now become serious personal pressures … because your assets, family home, and future could be at genuine risk.
With Ash Walker Lawyers, there are powerful and effective solutions.
Bringing understanding and extensive insolvency expertise, we work ceaselessly to protect you … defending your position, shielding your reputation, and pushing back hard against claims that threaten your livelihood. There are routes out … and with Ash Walker Lawyers, you can regain control and look forward to a positive future.
What Is Insolvent Trading?
As the phrase suggests, Insolvent Trading happens when your company is in financial distress, yet continues to conduct business. But, just providing a service or selling existing stock when you have cash flow issues isn’t enough to constitute the act.
Under Section 588G of the Corporations Act 2001, two conditions must be met concurrently:
1. Your company is insolvent – it’s unable to pay its debts in full as and when they fall due, and …
2. You, as a director, continue to incur debt – while the company is insolvent.
The act is committed by the director(s), not the company itself. They are taking on new financial obligations when they know (or at least should know) that the company won’t be able to pay for it … therefore, they’re acting dishonestly against the party providing the new credit, and worsening the situation for existing creditors.
Who Makes Insolvent Trading Claims?
The claim is usually made by:
- The Company’s Liquidator.
- ASIC (Australian Securities and Investments Commission).
- Creditors – rare, but a creditor can instruct the liquidator to pursue a claim.
In most circumstances, Insolvent Trading claims are investigated once your company enters liquidation or administration … because the Liquidator or Administrator looks deeply into the company’s historical finances to look for breaches of director duties.
They examine whether the company was already insolvent for a while before it had to close, and if the director still allowed the business to take on further debt during that period. If so, the Liquidator can pursue the director personally to recover those losses.
While Administrators don’t have the power directly to bring Insolvent Trading claims, they are still required to investigate and report it. This can often lead to a formal claim once the company is later placed into liquidation.
Facing an Insolvent Trading Claim?
The Consequences of Insolvent Trading
If you’re found liable for insolvent trading, the consequences are extremely serious.
Many entrepreneurs choose the Proprietary Limited Company (Pty Ltd) structure to shield themselves and their assets from the risks of running their business. But Insolvent Trading claims don’t care about company structures, they come after you as a director personally. Meaning everything you own can be under threat.
The Possible Director Penalties for Insolvent Trading
- Personal compensation – you’re ordered to pay compensation for the total amount of debts incurred during the insolvency period … it’s potentially unlimited and usually the most financially damaging consequence.
- Civil penalties – large fines up to:
- 5000 penalty units (currently 1 unit = $330), or
- Up to three times the benefit gained or loss avoided, whichever is the greater.
- Possible director disqualification, up to 20 years.
- Criminal liability – Insolvent Trading through dishonesty can lead to:
- Fines up to 2000 penalty units.
- Imprisonment up to five years.
You’re Personally at Risk!
Our Strategies – Insolvent Trading Claim Defences
If you receive a claim for Insolvent Trading, it’s undoubtedly serious and concerning … your assets and your home could be at risk. But, a claim isn’t a final verdict.
Ash Walker Lawyers work relentlessly to bring reassurance and shielding… examining your company and your actions as a director to create the most effective defence strategy possible.
The Key Insolvent Trading Defences
Safe Harbour Defence
Under the Corporations Act’s Safe Harbour Provisions, you, as a company director, are safeguarded from claims of trading while insolvent … if you took on debts while taking a route that was reasonably likely to lead to a better outcome for the company than immediate administration or liquidation.
Effectively, this highly useful and common-sense approach gives you a little breathing room … letting you try for a genuine restructuring or turnaround without the threats of civil or criminal proceedings.
That said, to be eligible, it only applies when:
- The company’s books and records are up to date.
- All employee entitlements are paid.
- Tax filings are compliant.
- A restructuring plan is being developed or actioned.
- The actions were genuinely made to achieve a better outcome than liquidation.
Statutory Insolvent Trading Defences
If the Safe Harbour defence doesn’t apply in your circumstances, we may pursue one of the numerous statutory insolvent trading defences detailed under Section 588H of the Corporations Act:
Reasonable Expectation of Solvency Defence
We show the court that when the debt was incurred, you had reasonable grounds to believe that your company was solvent … and would remain so.
However, not knowing or understanding the company’s position isn’t a defence.
Instead, we must demonstrate that your expectation was based on reliable, up-to-date financial information.
Competent Person Defence
Showing that, when you took on new debt, you were relying on a competent and reliable person (such as an accountant or CFO) for solvency information, and they were, to the best of your knowledge, fulfilling that role properly. Based on the info you received, you expected your company to be solvent.
But, you can’t use this defence if you suspected the company was insolvent, missed red flags, or didn’t question information that seemed doubtful.
Illness and Absence Defence
Proving that, because of illness or another good reason for absence, you weren’t managing the company when the debt was incurred. Using illness as a defence is straightforward… it was severe enough to stop you from completing your decision-making duties.
Good reason is a little more complicated. It doesn’t mean you were uninterested or busy with something else … it needs to be something that genuinely prevented your involvement. This could include being on approved leave or having a conflict of interest, which meant you couldn’t be involved.
Reasonable Steps Defence
Proving that you took all reasonable steps to prevent the company from incurring new debts, but the Company still took them on. What are considered to be reasonable steps is judged by the Court on a case-by-case basis, but could include:
- Seeking professional advice – as soon as you suspected insolvency, you sought advice from a qualified lawyer or insolvency practitioner.
- Preventing debt – you voted against getting into more debt, or you instructed management to stop placing orders on credit.
- Taking formal action – you made efforts to appoint a Voluntary Administrator or Restructuring Practitioner to secure the company.
Protect Yourself TODAY
How To Avoid Claims for Insolvent Trading
Prevention is always better than cure. If your company is in financial distress, stop taking on any new debt straight away and speak to a legal expert in insolvency … such as Ash Walker Lawyers.
Furthermore, take proactive, immediate measures … they could be vital in any defence, shielding you from the serious consequences of a possible Insolvent Trading Claim.
Key Steps To Avoid Insolvent Trading
- Implement Safe Harbour – engage a restructuring expert to develop a course of action to lead to a better outcome than liquidation.
- Be compliant – ensure all employee entitlements are paid, and all ATO tax filings are lodged.
- Stop spending – cease all discretionary spending, like staff parties and first-class airline tickets, and don’t take on new loans or leases.
- Document everything – ensure your financials are up to date and accessible.
- Board reporting – make sure all discussions, meetings, and resolutions are fully documented.
- Seek urgent advice – consult with a qualified insolvency lawyer, like Ash Walker.
Do You Need a Lawyer for Insolvent Trading Claims?
Yes, because without legal representation, your assets, home, and future are at serious risk. Your Company isn’t offering you the usual shielding … instead, the claim is being made directly at you as a director.
Since Insolvent Trading exposes you to possible hefty compensation orders, civil penalties, or even criminal prosecution … you need an experienced insolvency lawyer by your side. Ash Walker provides:
✔ Time-Critical action – immediate advice on how to challenge the claim and prevent the matter from escalating.
✔ Identification of strong defences – including Safe Harbour, reasonable expectation of solvency, and reliance on a competent person.
✔ Shielding of your personal assets – advising on your exposure, exemptions, and legal steps to reduce personal risk.
✔ Negotiations with liquidators or ASIC – to resolve disputes without litigation.
✔ Represent you in court proceedings – arguing against liability, fighting claim errors, and ensuring your rights are protected.
✔ Giving restructuring advice – helping you to stabilise or restructure your company.
✔ Providing understanding support – knowing that serious Insolvency Trading claims affect much more than your assets and your company.
Don’t Try To Defend Alone!
Ash Walker Lawyers … Your Insolvent Trading Claim Experts
The threat of an Insolvent Trading Claim can knock you sideways … your home, reputation, belongings, and even your freedom could be on the line. You feel isolated and confused by the scale of the personal liability you are now facing.
But you aren’t alone, you have the relentless support of Ash Walker Lawyers.
With genuine compassion and understanding, we bring urgent and knowledgeable legal support and guidance to defend your position.
With Ash Walker Lawyers, You Get the Advantages Of:
FREE 24-hour Phoneline
Personal liability is on your mind all the time, get urgent support when you most want it.
Prompt Action
Time is of the essence, get immediate opinion and advice to safeguard your interests.
Non-judgemental Assistance
Giving you the support and reassurance you need, without criticism or condemnation.
Tailored Defence Strategies
Prioritising best outcomes, whether that’s deploying the Reasonable Steps Defence or seeking an early settlement.
Being Your Voice
Taking over correspondence and discussion with the Liquidator, ASIC, and the Trustee on your behalf.
Transforming Confusion Into Order
Delivering much-needed calm and peace of mind to worrying personal liability situations.
Facing an Insolvent Trading Claim?
Trading While Insolvent FAQs
What Is the Limitation Period for Insolvent Trading Claims?
Usually, a liquidator has six years from the date the liquidation begins to formally start court action for insolvent trading. It’s not enough for the liquidator to have only issued a letter of demand … the legal proceedings must be formally begun inside that period.
Can Multiple Directors Be Personally Liable for Insolvent Trading?
Yes, they can! Every single person who was a director at the time the company took on the debt … and who had reasonable grounds to suspect insolvency … can be held personally liable.
Can I Blame My Accountant as a Defence for Insolvent Trading?
You can’t blame your accountant, since they do not run your company. But, you may be able to use a Reliance on a Competent Person Defence … if you genuinely believed your company was solvent since you trusted and expected them to give you reliable financial information.
Does Director Insurance Cover Insolvent Trading?
Usually no. Directors and Officers (D&O) insurance policies may sometimes address the costs of your legal defence, but in most cases, they have insolvency exclusions … meaning they will not satisfy final compensation orders.