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the company’s operation which makes easier for them to detect any problem within
the company. Directors are also expected to be involved in the preparation of the
company’s financial statements so that preventive measures can be adopted sooner. 6
Directors are placed with responsibility to be actively involved in monitoring the
company’s financial in order to ascertain the company’s ability to pay for debts as
they fall due.
Those who are not actively involved in the running of the business must ensure that
proper and appropriate systems are placed for the purpose of determining company’s
financial status. 7 Directors are also expected to obtain appropriate advice from
suitably, qualified and competent third party on the financial status of the company
as well as the steps to be taken if the company is insolvent. 8 The engagement of the
advice of expert professional to assist directors in the management of the company
will be benefit everyone in the company including shareholders and creditors. The
extent of the steps need to be taken by directors will depend partly on the
circumstances of the company such as the size and complexity of the business. 9 In
addition, skills and experiences of the company’ management and staff are relevant
for that purpose. 10
The availability of these defences provides clearer guidelines to directors on steps to
be taken. This can assist directors on their cause of action and provides for better
corporate governance. In New Zealand, the court interpreted that directors are
allowed to take risks in trading so long as it is legitimate and this has remove the
misconception that company are not allowed to take any risks when the company is
6 Australian Securities & Investments Regulatory Guide 217, Duty to prevent insolvent trading: Guide
for Directors, RG 217.29. at 16 September 2010.
7 Ibid.
8 Ibid.
9 Ibid.
10 Ibid.
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