Ann: Final Director's Interest Notice, page-8

General information to research
Debts incurred when the company becomes insolvent

You may be liable for debts incurred by the company at a time when the company itself is unable to pay those debts, as and when they fall due. This is because one of the fundamental duties of a director of any company is to ensure that the company does not trade while it is insolvent.

A company is insolvent if it cannot pay its debts when they become due. Common signs of insolvency include:

• low operating profits or cash flow from the business
• problems paying trade suppliers and other creditors on time
• trade suppliers refusing to extend your business further credit
• problems with meeting loan repayments on time or difficulty keeping within overdraft limits
• legal action taken, or threatened, by trade suppliers or other creditors over money owed to them.

To determine if a company is trading while insolvent, directors will need to assess:

• the cash flow of the company – You need to determine whether your company’s anticipated current and future cash flow will be sufficient to enable it to pay current and future debts as and when they fall due
• the financial position of the company in terms of the assets and debts it has as a whole – Can the company liquidate (e.g. sell) sufficient assets to pay debts as and when they fall due?

If you allow the company to trade while insolvent, you may be acting illegally and be in breach of civil and criminal provisions of theCorporations Act 2001.