Business Law Report: Insolvent Trading and Director's Duty Analysis

This report examines a business law scenario involving insolvent trading and the duties of company directors. The case involves a company seeking a loan for expansion, and the report analyzes the legal consequences for the directors, specifically Andrew, Brian, and Colin, based on their actions and knowledge of the company's financial situation. The analysis focuses on Section 588G of the Corporations Act 2001, which addresses insolvent trading, and Section 1317E (1), which outlines civil penalties for directors who breach their duties. The report concludes that Andrew and Colin could be held liable for insolvent trading, while Brian might be able to defend himself due to his lack of awareness. The report references relevant legal sources, including the Corporations Act and an academic article. This assignment offers a comprehensive analysis of the legal principles involved in insolvent trading and the responsibilities of company directors.

Running head: BUSINESS LAW
Business Law
Name of the Student
Name of the University
Author Note

1BUSINESS LAW
Issue
The issue is to determine the legal consequences for Andrew, Brian and Colin.
Rule
Section 588G of the Corporations Act 2001 (Cth) list down a duty for the directors to
prevent trading while the company is insolvent. This section is applicable to a person who
was in a position of a director when the company was in debt. Such director shall be held
liable if the company was insolvent or was in the verge of becoming insolvent by incurring
such debt. The director shall be held liable if there were reasonable grounds for him to
suspect that the company is insolvent or may become insolvent in your future (Anderson
2009).
Section 1317E (1) of the Act lays down the civil penalty for the directors who breach
their duty pertaining to insolvent trading (Anderson 2009).
Application
In the given case and you decided that their company need expansion and for that they
required to take a loan for $2 million, $1 million would have been used for buying stock
while the other $1 million would have been used for buying a new warehouse. All of these
decisions were taken by Andrew while Brian was absent in the meeting. Colin informed
Andrew about the poor financial capacity of the company, to which Andrew counter colon
and said that the loan would be a good idea for the company. Sure and you and Colin would
be held for preaching director duty for insolvent trading while Brian could defend himself for
being unaware of the situation.
Conclusion

2BUSINESS LAW
And you and Colin would be held liable for insolvent trading. While Brian could
escape the legal consequence by establishing that he was not aware of the situation.
References
Anderson, H., 2009. Piercing the veil on corporate groups in Australia: the case for
reform. Melb. UL Rev., 33, p.333.
Corporations Act 2001 (Cth)