Risk of Personal Liability for Directors

Breaches of the Corporation Act by directors of companies may result in personal
liability. Serious breaches may also result in criminal liability.

Insolvent trading

If some or all of the following events are present in a company and the company is subsequently placed into liquidation, then the director may be at risk of
prosecution by a liquidator.

  • Overdue Commonwealth and/or Statetaxes
  • A poor relationship with its financier,including an inability to borrow further funds
  • No access to alternatefinance
  • An inability to raise further equity capital
  • Continuing losses
  • A liquidity ratio below 1
  • Suppliers placing the company on cash on delivery (COD) or otherwise demanding special payments before resuming supply
  • Creditors remaining unpaid outside of trading terms
  • Issuing post-dated cheques
  • Dishonoured cheques or electronic payments being returned unpaid
  • Special arrangements with selected creditors
  • Receipt of solicitors’ letters, summonses, judgements or warrants issued against the company
  • Payments to creditors of round sums which are not reconcilable to specific invoices
  • An inability to produce timely and accurate financial information to display the company’s trading performance and financial position and make reliable forecasts.