A senior official from the Australian Securities and Investments Commission says it could offer leniency over insolvent trading laws for directors of small and medium companies who have sought advice and acted in good faith.
ASIC’s insolvency commissioner Michael Dwyer told The Australian Financial Review that the corporate watchdog is willing to be “very understanding of the pressures facing directors of small to medium sized companies”.
Insolvency experts are currently debating the impact that insolvent trading laws are having on company collapses during the downturn. Some experts believe directors feel the threat of personal liability for insolvent trading is so great that they are being forced to put companies into administration, rather than attempting a restructure or turnaround.
But while Dwyer says insolvent trading cases are ultimately a matter for the courts, ASIC’s enforcement would be guided by whether or not “directors of smaller companies have completed their obligations by taking advice”.
“If, with the benefit of hindsight, we look back and see a small to medium-sized company and a director has traded whilst insolvent, but has taken appropriate advice and followed that advice, he has probably acted in good faith and will be OK.
“If they don’t take advice or have taken advice and they do not follow it, that is where we are going to crack down.”
Dwyer’s advice to struggling companies is much like that given by insolvency experts such as Jim Downey; the earlier a struggling director gets help, the more chance they have to turn things around.
Related stories:
•· How to survive insolvency – and prosper
•· How do I know if my business has real cashflow problems?
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
