Regulatory Guide 217 - Duty to prevent insolvent trading: Guide for directors CPD
This guide is intended to help directors understand and comply with their duty to prevent insolvent trading.
It sets out:
• The relevant legal background (see RG 217.7–RG 217.22);
• The key principles that ASIC consider directors need to take into account in order to comply with their duty to prevent insolvent trading (see Section B); and
• Guidance on how ASIC will assess whether a director has breached their duty (see Section C).
While compliance with the guide may avoid a breach of duty, ASIC reserve our right to fully investigate the factual circumstances of each case of suspected insolvent trading and take action if they consider it appropriate.
The law in relation to insolvent trading involves complex legal and accounting issues. Directors should ensure that they understand their legal obligations and, if necessary, obtain appropriate advice.
Directors should actively monitor the solvency of the company, investigate financial difficulties, obtain advice from an appropriately qualified person where necessary, and consider and act appropriately on that advice in a timely manner.
Where a director follows these key principles, they are less likely to breach their duty to prevent the company from trading while insolvent.
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