When can a company director become personally liable for company debts?

In Australia, a company structure generally protects directors from personal liability. However, insolvent trading is one of the key exceptions. If a director allows a company to incur debts while it is insolvent, and there were reasonable grounds to suspect insolvency, the director may be personally exposed.

In this episode of Explain That by Velocity Legal, Andrew Henshaw is joined by Insolvency and Restructuring Director Seamus Ryan to discuss how insolvent trading claims arise, what liquidators look for after a company enters liquidation, and what directors should do when financial pressure begins to build.

The discussion covers:

• what insolvent trading means for company directors;
• when a company may be considered insolvent;
• how liquidators investigate potential insolvent trading claims;
• why claims often arise after liquidation rather than during trading;
• common indicators of insolvency, including cash flow pressure, missed payments and payment defaults;
• why resignation does not remove liability for debts already incurred;
• the limits of relying on good intentions or hoped-for recovery;
• the overlap between insolvent trading, ATO debt and director penalty notices;
• post-COVID insolvency and enforcement trends; and
• practical steps directors can take when solvency concerns arise.

A practical discussion for company directors, business owners, accountants and professional advisers dealing with insolvency, restructuring, cash flow pressure, liquidation risk or potential director exposure.

For advice on insolvency, restructuring, director exposure or insolvent trading risk, contact Velocity Legal’s Insolvency team.