Insolvent trading penalties
Hi and welcome to the Insolvency Experts — I’m Steven Kugel
In recognition of the damage insolvent trading causes creditors, the law provides penalties in order to discourage directors from allowing their companies to continue to trade and incur credit at a time when it was insolvent.
The penalties under the act include holding a director personally liable for the damage they cause to creditors and the company.
In this regard, a liquidator, an individual creditor or the Australian Securities and Investments Commission may all bring civil proceedings and damages claims for insolvent trading against a director.
Where a successful claim is made, the court may order the director to personally pay compensation to creditors and as the compensation order is potentially unlimited this may lead to the loss of personal assets and even the personal bankruptcy of the director.
Although rare, there are also criminal sanctions for insolvent trading where fraud or intentional dishonesty is involved. In this regard, a director may be fined up to 0,000 or even jailed for up to 5 years.
Finally, a director that engages in insolvent trading may be disqualified from managing a corporation for up to 10 years
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