Insolvent Trading in Australia: A Study of Court Judgments from 2004 to 2017

Insolvency Law Journal, Vol. 27, No. 3, pp. 156-184, 2019

36 Pages Posted: 5 Dec 2019

See all articles by Stacey Steele

Stacey Steele

University of Melbourne - Asian Law Centre

Ian Ramsay

Melbourne Law School - University of Melbourne

Date Written: July 21, 2019

Abstract

The duty imposed on company directors under Australian law to not have the company of which they are a director trade while it is insolvent is controversial. The recent introduction of a safe harbour for directors’ personal liability for breach of the duty to prevent insolvent trading highlights the ongoing controversy surrounding this duty. This article presents the findings from a study of judgments of courts which considered the duty to prevent insolvent trading from 2004 to 2017. Directors were found liable in 72% of the judgments but the success rate differed significantly depending on who was the plaintiff. In cases brought by liquidators, the plaintiff was successful in 84% of the cases. In cases brought by creditors, the plaintiff was successful in only 42% of the cases. Almost 60% of compensation orders made against directors were for less than $500,000, but about one third of judgments involved compensation orders of over $1,000,000. The study also found there was no judgment in which a director successfully argued one of the statutory defences to an insolvent trading claim.

Keywords: insolvent trading; directors' duties; liquidation; insolvency

Suggested Citation

Steele, Stacey and Ramsay, Ian, Insolvent Trading in Australia: A Study of Court Judgments from 2004 to 2017 (July 21, 2019). Insolvency Law Journal, Vol. 27, No. 3, pp. 156-184, 2019, Available at SSRN: https://ssrn.com/abstract=3490475

Stacey Steele

University of Melbourne - Asian Law Centre ( email )

Melbourne
Australia

Ian Ramsay (Contact Author)

Melbourne Law School - University of Melbourne ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 5332 (Phone)

HOME PAGE: http://law.unimelb.edu.au/about/staff/ian-ramsay

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
378
Abstract Views
3,219
rank
94,455
PlumX Metrics