The Australian Insolvent Trading Prohibition - Why Does It Exist?

Abstract

Since the test of the doctrine of the separate legal entity in Salomon v Salomon interest in stakeholders' rights has been maintained with respect to circumstances where the company approaches insolvency. This paper outlines the change in approach from 'creditor beware' at the time of Salomon to the current creditor protection view taken by the Corporations Act, currently including the Australian insolvent trading prohibition. The paper is the first part of two papers, the latter being "The Economic Necessity for the Australian Insolvent Trading Prohibition": SSRN_ID1802246.

Keywords: separate legal entity, Salomon, insolvency, bankruptcy, creditor, insolvent trading, wrongful trading

JEL Classification: K22, K29