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mere hope or possibility which requires directors to predict the company‟s
capability in the future.
The aim of the legislature in lowering the standard is to ensure that directors are
more responsible and accountable in managing the company. This can be seen
from the Parliament‟s action in enacting the law relating to director‟s duties. Over
time, the duty imposed on directors, especially when the company is insolvent, is
getting heavier. 240
On the other hand, the lowering of the standard of care in section 588G has been
criticised as discouraging competent and reliable directors from taking up office,
while the errant ones are let off the hook. 241 The courts also have the tendency to
be overly protective of creditors and less sympathetic of directors, which may
result in honest and reliable directors being subjected to personal liability. 242
10.5.2.5 Failure to Prevent Incurring of Debts
Apart from the elements mentioned in subsection (1), the liquidator or creditor
must also prove 243 that the director is aware at the time debt is incurred that there
are reasonable grounds to suspect that the company is insolvent or will become
so. Alternatively, the director is also liable if a reasonable person in the same
position would be so aware.
The plaintiff is required to prove awareness based on an objective standard of an
ordinary competent person, and this is not based on the personal elements of the
240 See Elliot v Australian Securities and Investment Commission; Plymin v Australian Securities
and Investment Commission (2004) VSCA 54 at [103].
241 Dale A Oesterle “Corporate Directors‟ Personal Liability for “Insolvent” “Reckless” and
“Wrongful” Trading: A Recipe for Timid Directors, Hamstrung Controlling Shareholders and
Skittish Lenders” (2001) NZBLQ 20 at 21; Coburn above n229 at 100-101.
242 Ibid.
243
Section 588G(2)- By failing to prevent the company from incurring the debt, the person
contravenes this section if:
(a) the person is aware at that time that there are such grounds for so suspecting: or
(b) a reasonable person in a like position in a company‟s circumstances would be so aware.
284