In circumstances where a company continues to trade and it is determined that the company was insolvent, the director(s) are potentially exposed to personal liability.
The Corporations Act, provides that “a person is solvent if, and only if, the person is able to pay all of the person’s debts, as and when they become due and payable”. It also provides that a person who is not solvent is insolvent.
Considering the definition contained in the Corporations Act is generally accepted that the primary test of insolvency is a cash flow test which is often a complex analysis and generally requires the opinion of an expert. When determining a date of insolvency of a company, consideration will be given to a number of key indicators.
Set out below is a checklist for company directors and advisors indicators of insolvency to assist with determining whether a company may be insolvent. The list identifies if you answer “Yes” to any of the below questions the company may be insolvent or at risk at becoming insolvent. We recommend you take immediate action and contact us for a no obligation preliminary consultation.