We have previously written about changes to insolvent trading laws introduced by the Federal Government as part of its COVID-19 measures. Essentially, they provide some relief for directors being pursued for claims for trading a business while insolvent. The moratorium was initially due to end in September 2020 but the government has since extended the moratorium for a further 3 months. It will now cover insolvent trading until 31 December 2020.

Many however, are not aware that the moratorium does not come without conditions. Section 588GAAA of the Corporations Act 2001 sets out the conditions. Directors are only relieved from insolvent trading liabilities if the debt is incurred:

• In the ordinary course of the company’s business;
• During the relevant period, that is until 31 December 2020 or any other period prescribed; and
• Before 31 December 2020 an administrator, or a liquidator is appointed to the company.

The last requirement is crucial for any director intending to rely on the provision. Directors are only protected if an administrator or a liquidator is appointed prior to 31 December 2020 (or any other prescribed period). Directors will not be afforded protection if no administrator or liquidator is appointed during that period.

Contact Us For Assistance

Trading a company while it is insolvent brings serious consequences to the directors. As such, if you think that your company is insolvent, speak to a qualified professional before continue trading. Contact our Brisbane or Gold Coast office for a free, no-obligation consultation. Take the necessary steps to protect yourself