View/Open - Research Commons - The University of Waikato

The first civil version of the insolvent trading principle which required directors
to contribute personally into the company was initiated by the New South Wales
Companies (Amendment) Act 1964. 217 The problem with the enforcement of this
section was its dependency upon the conviction in section 303(3). Despite having
the civil provision, creditors were often left without any remedies because the
section was seldom invoked by the liquidators. Moreover, the procedures were
lengthy, and therefore and as a result, not many actions were brought under the
civil provision. 218
Section 556, a predecessor to the current section 588G was enacted in 1981 and
provided for civil liability. 219 The provisions did not depend on any criminal
convictions although they were not free from defects. The Law Commission
proposed for the wording of the sections to be restructured and identified several
weaknesses which included that: 220
a) the provisions continued to contain both the criminal and civil elements;
as can be seen from the decisions in Metal Manufacturers Ltd v Lewis
(1986) 4 ACLC 739, 3M Australia Pty Ltd v Watt (1984) 9 ACLR 203
and 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371; 221
b) the remedy is not for the benefit of the general body of creditors but only
for those who bring the action against directors - therefore it would only
benefit those with sufficient means;
c) the section did not provide a standing for a liquidator - hence it would not
benefit the general body of creditors, as evidenced from the decisions in
Ross McConnel Kitchen & Co Pty Ltd (in liq) v Ross (1985) 9 ACLR
532; and
217 ALRC R45 Vol 1 1988 above n7 at[278].
218 Ibid, at [278-279].
219 In 1991, the Commonwealth introduced in the Corporations Act 1989 section 592 which dealt
with insolvent trading and it is similar to section 556.
220 ALRC R45 Vol 1 1988 above n7 at [279].
221 See also section 556(1) of the Australian Corporations Act 1989.
279