Liability under s 588G, H?

1. State test: Does s 588G apply? 5 elements. When the director fails to prevent the company from incurring the debt where five elements:

2. Req 1#: (a) director at time of incurring debt (s 9; time of incurring debt in s 588G(1A));

3. Req 2#: (b) company insolvent or becomes insolvent by that debt (definition of insolvency in s 95A);

4. Req 3#: (c) reasonable grounds for suspecting that company is insolvent, or would so become insolvent as the case may be;

5. Req 4#: (d) time is after commencement of act;

6. Req 5#: director aware at time of such grounds for suspecting insolvency (s 588G(2)(a)) or a reasonable person in a like position would have been so aware: s 588G(2)(b).

7. Any applicable defences? s 588H

8. Consequences of breach: s 588G(2) is a civil penalty provision: s 1317E(1)

Liability to compensate company

9. Liability to compensate company? S 588J(order to pay compensation under s 588J may be enforced as if it were a judgment of the court: s 588L)

10. Criminal court could order compensation: s 588K(order to pay compensation under s 588K may be enforced as if it were a judgment of the court: s 588L)

11. Recovery of compensation for loss resulting from insolvent trading: s 588M

12. Avoiding double recovery: s 588N

13. Effect of ss 588J, 588K and 588M: s 588P

Proceedings by Creditor

14. Creditor may sue for compensation with liquidator’s consent: s 588R

15. Creditor may give liquidator notice of intention to sue for compensation: s 588S

16. When creditor may sue for compensation without liquidator’s consent: s 588T

17. Events preventing creditor from suing: s 588U

[Prelim: Was the person in question a director? See s 9 ]

Does s 588G apply? When the director fails to prevent the company from incurring the debt where five elements:

1. Req 1#: Needed to be a director at time when company incurs debt: s 588G(1)(a). When does a company incur a debt? Look to table: s 588G(1A)

2. Req 2#: Company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt: s 588G(1)(b);

   1. Definition of insolvency: s 95A

   2. Note – incurred or imposed? Voluntary tax? Sales tax not voluntary. But payroll tax is because of voluntary act of hiring staff.

3. Req 3#: at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be: s 588G(1)(c)

4. Req 4#: that time is at or after the commencement of this Act: s 588G(1)(d)

5. Req 5#: Director must be aware at the time that there are such grounds for suspecting insolvency (s 588G(2)(a)) or a reasonable person in a like position in a company in the company’s circumstances would be so aware: (s 588G(2)(b)): S 588G(2).

6. No applicable defences? s 588H. D against whom 5 elements proven bears onus in establishing any of the following defences:

   1. Defence 1#: That director had reasonable grounds to expect and did expect that Co would be solvent at that time and would remain solvent even if it incurred that debt: s 588H(2).

   2. Defence 2#: – if D had R grounds to believe that a competent and reliable person was responsible for providing info to the D about wether the co was solvent and that th other person was fulfilling their responsibility; and that person expected on the basis of the information provided that the co would remain solvent: s 588H(3)

   3. Defence 3#: If D, because of illness or other good reason did not take part at that time because of the management of the co: s 588H(4) Not a good reason that you have other duties and your husband runs the company: FCT v Clarke

   4. Defence 4#: If D took all reasonable steps to prevent the co incurring the debt: s 588H(5). (Court must take into account any action the D took re appointing an administrator of the co, when that action was taken, and the results of that action: s 588H(6)).

7. Criminal liability under s 588G(3)?

8. Consequences of breach: s 588G(2) is a civil penalty provision: s 1317E(1)

Was X a director at time when company incurs debt: s 588G(1)(a)?

X a director: see definition of s 9.

X a director at time when company incurs debt? When does a company incur a debt? Under s 588G(1A)

588G (1A) 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.