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The difference between the UK and the Australian section 588H(5) is that, in the
UK, directors are subjected to a lesser burden since the legislation does not
require directors to take all reasonable steps, but only to take reasonable step.
Therefore, in the UK as long as the court is satisfied that the director has taken
reasonable steps to minimise losses, he or she is protected while in Australia,
directors are not protected if, in the opinion of the court, they fail to take all
reasonable steps. 63 In addition, the defence is available to directors in the UK
after the company has gone into insolvent liquidation, or in other words after the
company has engaged in the wrongful trading.
In Australia, however, directors must take all reasonable steps in order to prevent
the company from incurring debts which may lead it into insolvency to begin
with. It should be noted that the Australian legislation concentrates on preventive
measures, while in the UK the focus is more on minimising losses after the fact.
New Zealand law does not provide for any specific affirmative actions as
defences, unlike the UK and Australia. Directors, therefore, have to rely on
section 135 and can avoid liability if, in the opinion of the court, the "business
was not carried on in a manner likely to create substantial risks of serious loss to
creditors." As such, the court‟s interpretations of what constitute substantial risks
and serious loss are crucial in determining whether or not a director is liable.
From the wording of the sections mentioned above, it seems that directors in
Australia will be the first to be caught under its insolvent trading provisions,
followed by directors in New Zealand, and then by those in the UK. By
stipulating that directors have a duty to prevent the company from incurring debts
if there are reasonable grounds for suspecting that the company is insolvent or
would become insolvent, the statute has imposed a stricter standard compared to
New Zealand and the UK. The usage of the word „suspect‟ in the section calls for
directors‟ liability if the company‟s financial information shows the company is
63 See the discussions in Keay above n2 at 112-114.
242