When a company goes through lean times, there is a natural tendency to believe that, despite the present troubles, it will eventually come through and survive. Many times this attitude does result in the survival of the company. Many times it will mean that the company is technically insolvent during that period.
What does being involvent mean? Section 95A of the Corporations Act 2001 gives the broad principle, and provides as follows:
Solvency and insolvency
- A person is solvent if, and only if, the person is able to pay all the person 's debts, as and when they become due and payable.
- A person who is not solvent is insolvent
The problem for a director is that if a company continues to incur debt whilst it is insolvent, the director can be personally liable to creditors for losses incurred in that period.
There are many factors which should be considered when a company is in a difficult position.
Contact us as soon as you consider you have a problem and we can advise you.
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