Who must prevent insolvent trading (s 588G)?

Directors must prevent the company incurring debts while insolvent — or face personal liability.

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.

Applies when the business has an incorporated company.

How the regulator frames it: Directors of companies in financial distress.

What triggers it: Reasonable grounds to suspect insolvency.

Jurisdiction: Commonwealth law, so the test is the same in every state and territory.

Outcome across the 35 industries Rules Mate maps (35 of 35: depends on size or structure).

The answer is the same in every industry: depends on size or structure. Industry does not change who must comply.

Size does not change the answer across all industries: at every size band the answer is "depends on size or structure".

Each line is one run of the Rules Mate applicability engine for a single business profile, with the reason the engine gives:

• Pty Ltd company in real estate agents with 6–19 employees, turnover $1M–$3M: applies. Incorporated company (Corporations Act)
• Sole trader in real estate agents with 6–19 employees, turnover $1M–$3M: does not apply. Requires an incorporated company.

When due

Immediately on suspicion of insolvency.

Frequency

Ongoing

Evidence to keep

Cash flow forecasts, board minutes, safe harbour adviser engagement, restructuring plan.

Status

Current

Priority

Critical

Maximum penalty: Civil penalty up to $1.82M (individuals), compensation orders to creditors, plus criminal liability for dishonest conduct.

Rules Mate has not yet classified the audit or assurance level for this obligation. Any audit, review or certification requirement is set by the regulator source listed below.

• ASIC actions arising from Greensill Capital collapse (2024): Directors of complex financial-services structures must understand and document risk concentration, related-party exposure, and going-concern triggers.

If this obligation applies to you, so do these 5: the engine uses the same rule for each.

• Lodge the ASIC annual company statement and review fee
• Comply with directors' general law and statutory duties
• Pay ASIC fees + lodge prescribed forms
• Pay company PAYG/GST/SG or face Director Penalty Notice (DPN)
• Discharge of directors' duties — practical evidence

• Apply for a Director Identification Number (Director ID): Every director needs a Director ID before appointment — apply via ABRS.
• Appoint voluntary administrator under Part 5.3A Corporations Act: Directors can place company in voluntary administration when insolvent — pause creditor claims for restructuring window.
• Simplified Debt Restructuring (small business): Small companies (<$1M liabilities) can use SDR to restructure without full external admin.

Across the 1,890 business profiles Rules Mate evaluates, these obligations apply to most of the businesses this one applies to, and are far more common among them than among businesses generally:

• Maintain auditor / financial reporting (Chapter 2M): applies to 58% of the same businesses (4.5× the overall rate)
• Comply with corporate whistleblower protections (Part 9.4AAA Corporations Act): applies to 58% of the same businesses (4.5× the overall rate)
• Beneficial ownership transparency (Tranche 3 — under consultation): applies to 100% of the same businesses (4.5× the overall rate)

Rules Mate tracks 9 published obligations tagged "directors", 5 of them rated critical. For a professional services Pty Ltd company with 6–19 employees operating in every state, 6 of those apply outright. This obligation is rated critical priority and carries criminal liability, and is an ongoing duty.

Regulated by Australian Securities and Investments Commission.

ASIC: Corporate regulator administering the Corporations Act, financial services and credit licensing (AFSL/ACL), markets supervision, insolvency, and registries (ASIC and ABRS).

• Australian Securities and Investments Commission

Corporations Act: The foundational federal Act for Australian corporate law.

• Corporations Act 2001

Free tools that help with this obligation:

• Director ID checker
• Director duties check
• Whistleblower policy builder