Insolvency & s 588H defence

It is an offence for directors to permit the company to incur a debt that will cause insolvency or increase existing insolvency where there are reasonable grounds for suspecting that this may occur (s 588G CA).

The defences available under s 588H CA are based upon having an expectation that the company was solvent. A director would have to argue that s/he relied upon information provided by another competent reliable person. 

• Must be an expectation of solvency - Higher standard and needs more than hope (Metropolitan Fire Systems v Millar)
• No financial reports means directors can’t have any expectation

A director cannot argue that he was not involved in the management decision because he left the decision making to others and only went along with the majority as he didn’t have time to properly prepare due to late receipt of the board papers.