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ability of the company to pay off its debts at the time they were contracted. The
relevant time under the Australian provisions refers to the time when debts were
incurred, the company was not able to pay off its debts, or consequent to
incurring the debts, the company could not pay off its debts.
An officer of the company will only be liable for insolvent trading in respect of
contractual debts only and not any other debts, a deficiency which remains in the
current Australian section. The exclusion of involuntary creditors raises doubt as
to whether creditors are actually protected as intended by the section. Initially,
when the provision was enacted the aim was to punish the person responsible and
therefore, the exclusion of involuntary creditors may not be as important, but
throughout the years the focus has shifted to compensating creditors. Therefore, it
is necessary to include all creditors and not be limited to contractual creditors
only.
Section 304(2) can only be enforced by the liquidator, contributory or creditors
once there has been a conviction under section 303(3). Therefore, their hands are
tied if the prosecution decides not to charge the person involved. Further, even if
there is a prosecution, there is no guarantee that it will result in a conviction. The
existence of the precondition may prevent creditors from being compensated.
Under section 592(1), only creditors have the right to bring the civil action, a
liquidator is not conferred such right. 311 As a result, only creditors with sufficient
means will be able to take advantage of the civil provisions. In addition, it also
caused multiplicity of proceedings.
Consistent with criminal liability, section 303(3) uses the word „expect‟ rather
than „suspect‟ as in the current section 588G of the Corporations Act 2001. 313
This requires a higher threshold of knowledge and awareness. 314 The test to
determine knowledge or awareness on the part of the officers of the company is
311 See Ross McConnel Kitchen & Co Pty Ltd v Ross (1985) 3 ACLC 326.
313 Section 592(1) also used the word „expect‟.
314 See decisions by Einfeld J in Metropolitan Fire Systems Pty Ltd v Miller (1997) 23 ACSR 699
at 711.
305