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defendant. 244 Therefore, a director‟s personal knowledge, skills and experience
are irrelevant to establish liability, a position akin to New Zealand. 245 This stance,
however, differs from that of the UK, for in the UK, the court is compelled by
statute to take into consideration the ordinary competence standard as well as the
individual directors‟ knowledge, skills and experience. 246
The court in Elliot v Australian Securities and Investment Commission; Plymin v
Australian Securities and Investment Commission 247 rejected the defense
counsel‟s contention that the phrase “by failing to prevent the company from
incurring debts" in the opening of section 588G(2) requires the plaintiff to
establish that the director did not take effective steps to prevent the incurring of
the debts. Counsel for the director argued that a director who failed to take steps
to prevent a company from trading did not contravene section 588G(2) unless
there had been identification of steps which might be taken by the director. 248
The court, after having regard to the context, history and legislative purposes of
sections 588G and 588H stated that
a director contravenes the section „by not preventing‟ or „by failing to
prevent‟ a company from incurring a debt, and that a director will be
taken to have so failed if debts are incurred by a company at a time when
there are reasonable grounds for suspecting that the company is insolvent,
or otherwise it would render section 588H meaningless and irrelevant. 249
244 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 at 373.
245 See section 135 of the New Zealand Companies Act 1993.
246 See section 214(4) of the UK Insolvency Act 1986.
247 (2004) VSCA 54 at [91].
248 (2004) VSCA 54 at [88].
249 Elliot v Australian Securities and Investment Commission (2004) VSCA 54; Plymin v
Australian Securities and Investment Commission (2004) VSCA 54 at [116].
285