Act Fast, Act Soon to Avoid Insolvency

With uncertain times on the horizon, contractors must be aware of the rules surrounding insolvent trading set out in the Corporations Act.

Contractors rely on their customers to pay invoices for services rendered in order to pay their own outgoings such as wages and materials. However, when a major client stops paying or goes into liquidation, receivership or administration, it impacts the trading status of a contractor’s own company operations.

In these circumstances, the contractor may be in breach of the Corporations Act through no fault of the their own if the contractor continues trading. It is also interesting to revisit insolvency rules in the wake of the James Hardie Appeal as a director’s personal liability is of concern.

Insolvency is not actually defined in the Corporations Act but “solvency” is referred to in Section 92A(2) as being able to pay all debts as and when they become due and payable.

A business may be operational, continuing with work and issuing invoices, but at the same time be considered insolvent. All directors have a personal duty....

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