Duty to prevent insolvent trading

The economic downturn has brought insolvency issues to the forefront of the minds of corporate directors and they have to confront issues they had not foreseen during boom times. The recent collapse of One Tel and Ansett highlight the impact of the provisions contained in the Corporations Act pertaining to insolvent trading and draw attention to the rights of liquidators and creditors in that regard. What is insolvent trading? Normally when a company is put …

…corporation is in the vicinity of insolvency, the directors assume a fiduciary duty to the community of interest sustaining the corporation'. This community of interest includes the interests of creditors. Credit Lyonnais fundamentally changed the landscape of director liability and required directors to consider the effect their decisions may have upon non-shareholders. The decision expanded creditors' interests beyond the limits of their contractual arrangements with the corporation and into the broader area of fiduciary obligations.