Insolvent Trading

Insolvent Trading Penalties

In recognition of the loss or damage Insolvent Trading causes creditors, Insolvent Trading penalties hold directors personally liable for debts incurred after a company becomes insolvent.

Insolvent trading laws expose a director’s personal assets to loss in the event of a successful claim.

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Financial Penalties

If a Liquidator successfully brings an insolvent trading claim against a director, the director may then be ordered to compensate creditors for losses sustained. Compensation is usually given from the time the director traded and incurred debts when the company was insolvent.

The compensation order for the loss sustained by creditors is potentially unlimited and this may not only lead to the loss of personal assets, but also to the personal bankruptcy of a director.

Criminal and other Penalties

Although rare, there are criminal sanctions for insolvent trading if fraud or dishonesty is involved in the conduct.

Under the Act, a director can be fined up to $200,000 where it can be demonstrated that he/she acted dishonestly (for example, by attempting to deceive creditors as to the credit-worthiness of the company).

The Court has the additional powers to imprison a director for up to five years.

Additionally, a director with a criminal conviction can be disqualified from managing a corporation for up to 10 years.