The size of the company is less than their expenses for the next 12 months.
Can the company continue to raise cash to meet their expenses ? How much longer can they flog the death out of the ATM ?
Maybe rikki/harvett - before you suggest to investors to "grow up guys" .....(already these investors have lost many tens of thousands of dollars ) - that you understand the dire situation the company faces, in relation to "trading solvent" rules.
Below to help you -
What Are Directors Duties Regarding a Company’s Financial Position?It is the director’s legal obligation to ensure that a company doesn’t trade while insolvent. A director will be in breach of their positive duty to prevent insolvent trading if:
- they were the director at the time the company incurred debt,
- the company is insolvent at the time of incurring debt or becomes insolvent due to the additional debt incurred,
- there are reasonable grounds to believe that the company is insolvent or is likely to become insolvent,
- the director is reasonably aware (or should be reasonably aware) that these grounds exist and
- the director fails to take any steps to prevent the company from incurring debt.
Reasonable grounds that may indicate suspicion of insolvency include:
- company liabilities exceed the company assets,
- cash flow shortages,
- assets that can’t be liquidated,
- overdue taxes and superannuation liabilities,
- legal demands for unpaid debts,
- debt collection issues, and
- declined debt facilities.
These are just a few instances that
may indicate insolvency. However, you should seek advice from an accountant or insolvency practitioner to help you establish whether your company is insolvent or will become insolvent.
If there are reasonable grounds for suspecting insolvency, a director must:
- Act with care and diligence: company directors can avoid personal liability if they can prove that they took proper care to manage business affairs, stayed informed about the company, didn’t act dishonestly, and acted in the company’s best interests.
- Ensure that they’re aware of the company’s financial affairs: to act in the company’s best interests, a director must always stay on top of the company’s financial affairs so that they can make informed decisions on how to proceed with trading activities.
- Ensure that the company stops trading: if, after assessing the company’s financial affairs, there’s reason to believe the company may be insolvent, the director must ensure the company stops trading to avoid an insolvent trading claim.
What Are The Consequences of Breaching Director Duties?According to the Corporations Act, If directors are in breach of the duty to prevent a company from trading while insolvent, they may face serious penalties and consequences, including:
- Civil penalties: directors who continue to trade while insolvent may face civil penalties of up to $200,000.
- Compensation proceedings: any interested party, including the Australian Securities and Investments Commission (ASIC), a company liquidator or a creditor can institute insolvent trading claims against the director, who will be personally liable for the debts.
- Criminal charges: where a company director has misled creditors regarding its insolvent trading, they may face criminal charges, which could lead to a $220,000 fine or a five-year prison sentence.
