Breach of Duty Under S588G

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The issue is did Harry and Hermione breached their directors duty to prevent insolvent trading by a company under s 588G. In the Corporation Act s9 a director of a company or other body means: a. A person who: I. Is appointed to the position of a director; or II. Is appointed to the position of an alternative director and is acting in that capacity regardless of the name that is given to their position; and b. Unless the contrary intention appears, a person who is not validly appointed as a director if: I. They act in the position of a director; or II. The directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes. (Australian Corporations legislation, 2010) It has already been established that Harry and Hermione are directors of the Griffin Pty Ltd. The courts will first decide whether or not the directors of the company have engaged in insolvent trading and breached s588G. If the company is unable to pay its creditors then it will be insolvent, and the court will have to determine the liability of directors for debts of the insolvent company. Under s95A a company is insolvent when they have the inability to pay all one’s debts as and when they fall due. Under s 588G (1) liability arises if; a. The person is a director of a company when the company incurs a debt b. The company is insolvent at the time of incurring the debt, or becomes insolvent by incurring the debt c. There are reasonable grounds for suspecting that the company was insolvent or would become insolvent at the time the debt was incurred d. The person is aware of such grounds, or a reasonable person in a like position in a company in the circumstances of that company, would be so aware e. The person fails to prevent the company from incurring the debt There are also a number of defences directors can rely on s 558H provides that it is a

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