logo

Paper on Company’s Insolvency

   

Added on  2020-02-24

11 Pages2500 Words115 Views
Running Head: Law 1Law

Law2Introduction:Legal definition of insolvency states that company is considered insolvent, when total of theliabilities of the company exceeds the total of the assets of the company. According to section95A of the Corporation Act 2001, person or organization is solvent if it is possible for thatperson to pay all the debts at the time when they become due and payable, and person ororganization is insolvent if they are not solvent (Corporation Act, 2001). This paper contains detailed discussion on company’s insolvency, and also the role of thedirectors and ASIC in insolvency process. In this statistics related to insolvency of the Australiancompanies is stated and observance in this context. Subsequently, this paper states theconclusion. Discussion:As stated above, insolvency is the situation when organization is not able to pay its debts andassets of the organization are not enough to pay its liabilities. This can be understood throughcase law Bell Group Ltd (in liquidation) v Westpac Banking Corporation & Others. In thiscase, court held that primary method for determining the solvency of the organization is thedetermination of the company’s asset and liabilities. Following are some important aspects ofinsolvency:Signs which reflect company’s insolvency:ASIC issues regulatory guide 217 in 2010, which named as Duty to Prevent Insolvent Trading:Guide for Directors. As per this guide following are some signs of the company insolvencywhich must be determined by the directors of the company at former stage:Company incurred loss in trading, and also face issues related to cash flow. It becomes difficult for the organization to sell their stock or raising funds.

Law3With the current financier, organization is negotiating the new limit.Legal actions against the company are commenced by the creditors and otherstakeholders of the company. Reasonable measures considered by Board of directors:Directors of the company are under obligation to ensure that reasonable measures have beentaken if any above stated sign reflect the insolvency. Some of these measures are stated below:Any further debt must not be incurred by the directors of the company unless any chancesof restructuring and refinancing of the business occurred, and funding in the form of theequity is available for recapitalizing the business operations. Directors of the company must appoint voluntary liquidators and administrators.Directors are under obligation to ensure that interest of the creditors and otherstakeholders of the company are protected in case company become insolvent or there isany risk related to insolvency. Directors must not engage in any trading with outsiders, if company becomes insolvent orthere is any risk related to insolvency. Director’s liability in case of insolvency: Various duties are imposed on directors in case company becomes insolvent, such as duty toprevent any trading in the company when company becomes insolvent. This duty is imposed bySection 588G of the corporation Act 2001. As per this section, directors of the company areunder obligation to prevent the insolvent trading, and this section is applicable on the directors ofthe company and on those also who were only acting as the director of the company but in actualthey are not appointed as director of the company. This can be understood through case law

Law4Hawkins v Bank of China. In this case, Court stated that the list of deemed debts and specifiedthe situation when they occurred. Section 588G further stated that duty is imposed on director of the company from preventing thecompany to incurred further debt in case:Organization is insolvent at that time when debt is incurred.There is risk of insolvency on organization, if organization incurred that debt or series ofdebts which includes that debt also. Sufficient grounds are present which reflect the insolvency of the company in case debtis incurred by the company. This can be understood through case law Kenna & BrownPty Ltd v Kenna. In this case Court stated that objective assessment must be conductedby the directors for determining the insolvency. Contravention under this section is divided into two categories that are:In case directors of the company fail to compile section 588G which means director, failsto prevent the debt incurred by the company in that situation also when sufficient groundsare present and reflect that there is risk of insolvency, then such directors are liable undercivil provision. Directors of the company held liable under criminal provisions if director fails to preventthe company from incurring debt because of any dishonest reason, and sufficient groundsare present which clearly reflect that company is already insolvent or becomes insolvent(Corporation Act, 2001). In case a director of the company fails to compile with Section 588G then following are theconsequences of such failure (AICD, n.d.):

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Assignment Of LAW | Insolvency Consideration - LG237
|11
|2559
|90

Essay on Insolvency in Law
|11
|2330
|279

Corporate and Corporation Law Name of the Student Name of the University
|6
|1299
|147

Corporation Law - Assignment Sample PDF
|6
|1009
|135

Assignment on Corporate Law (pdf)
|6
|1030
|65

Commercial and Corporation Law
|12
|4002
|320