Prevent insolvent trading (s 588G)
Directors must prevent the company incurring debts while insolvent — or face personal liability.
Who must comply
Directors of companies in financial distress.
What triggers it
Reasonable grounds to suspect insolvency.
When due
Immediately on suspicion of insolvency.
Evidence required
Cash flow forecasts, board minutes, safe harbour adviser engagement, restructuring plan.
Max penalty
Civil penalty up to $1.565M (individuals), compensation orders to creditors, plus criminal liability for dishonest conduct
Summary
Section 588G makes directors personally liable for debts incurred while a company is insolvent, or becomes insolvent by incurring the debt. Safe harbour (s 588GA) protects directors who develop a course of action reasonably likely to lead to a better outcome than immediate liquidation — provided employees are paid and tax obligations met. The simplified debt restructuring regime offers an alternative path for eligible small companies.
Enforced by
Source legislation
Entity types
Topics
Source: https://asic.gov.au/regulatory-resources/insolvency/. Rules Mate is not a law firm. Always verify against the live regulator source before acting.