Nick Dowse Insolvent Trading Insolvent Trading - Structure of Answer 1. The corporate veil may be lifted or pierced to attach liability to directors or members in certain circumstances. 2. A director has a duty to prevent a company from trading when it is insolvent under s 588G. 3. Firstly, the company must incur a debt at or after 23 June 1993 (s 588G(1)(d)). a. A debt is an obligation by one person to pay a sum of money or money's worth to another (Powell v Fryer) or an obligation to pay an ascertainable amount ie a liquidated sum, not unliquidated damages (Jelin v Johnson) b. A debt is also incurred when a company: i. Borrows money from a bank or other lender (Friedrich); or ii. Leases business premises from a landlord (Russell v Martin). c. When does it incur the debt? i. Normally when the company acts to expose itself contractually to an obligation as a debt (Dawkins v Bank of China) eg contract to purchase goods on credit; or ii. Obligation imposed by law such as statutory obligation to pay tax (Shepherd v ANZ @ 993-994). iii. Under the CA, it deems a debt to be incurred in particular cases (s 588G(1A)) 1. Paying a dividend = when dividend paid, or when divided declared 2. Reduction of share capital = when the reduction takes effect 3. Share buyback = when the buyback agreement is entered into 4. Redeeming redeemable preference shares (where redeemable at corp's option) = when exercise option 5. Issuing redeemable reference shares (not redeemable at corp's option) = when shares are issued 6. Financially assisting acquisition of shares = when agreement entered into, or, if no agreement, when the assistance is provided 7. Entering into an uncommercial transaction (as per s 588FB) = when the transaction is entered into. 4. Secondly, the person must have been a director at the time the company incurs the debt (s 588G(1)(a)). a. The term 'director' is defined in s 9 of the Act. It includes a person who: i. Is appointed to the position of director; or ii. Is appointed to the position of alternate director and is acting in that capacity (regardless of name of position); or iii. Acts in the position of a director or whom the directors act in accordance with instructions or wishes, even if not validly appointed as a director, unless a contrary intention appears (s 9(b)). b. CEOs or Managing Directors (s 198C(1)) will come within the definition (s 9(a)(i)). c. Part time chairpersons will be directors under s 9(a)(i). d. Will also catch any people who act in the capacity of director. i. Covers appointed directors and also those not formally appointed but who act as either de facto or shadow directors. e. However, this element is only concerned with directors, not officers. Officers don't count. 5. Thirdly, the company must be insolvent at the time the debt is incurred, or become insolvent by incurring the debt or that debt and