Personal liability for insolvency: The devil’s in the detail

  • The clock is ticking for directors of companies that are financially distressed, at risk of becoming insolvent, or overly reliant on government support to remain profitable.
  • Directors need to arm themselves with the information they need to navigate the coming changes.
  • This article outlines the key questions directors should be asking.

As the Federal Government’s moratorium on personal liability for insolvency draws to a close, what should directors of financially distressed companies be asking?

Australian directors have long been under a legal duty to prevent their companies from trading while insolvent, or while there are reasonable grounds for suspecting insolvency. The Federal Government’s moratorium on personal liability for insolvency — an unprecedented move driven by the severe financial impacts of the COVID-19 pandemic — may have allowed for a sense of complacency to creep in. As the moratorium’s 31 December end date looms and other government support measures are wound back, it is essential that directors of companies that are financially distressed, at risk of becoming insolvent, or overly reliant on government support to remain profitable arm themselves with the information they need to navigate the coming changes.

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