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Duty to not trade while insolvent
Directors have a positive duty to prevent a company from trading and incurring debt while the company is insolvent.
This means that before a new debt is incurred, a director must consider whether there are reasonable grounds to suspect that the company is insolvent or is likely to become insolvent as a result of incurring the debt in question.
An understanding of the financial position of the company only when one signs off on the yearly financial statements is not sufficient. A director needs to be constantly aware of the financial position of the company.
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