Franz, Zac, and Jordan comprised the board of directors for Ben & Jolly’s Pty Ltd, and took a business decision to invest heavily in a major software upgrade across the organisation. When the relevant debt was incurred, the company had many outstanding invoices from suppliers and was significantly behind in loan, rent, and tax payments. Which amongst the following statements is CORRECT? Select one: a. If the company has been trading whilst insolvent, a liquidator can recover the debts from the directors personally. b. If the company has been trading whilst insolvent, a creditor, such as the supplier of the software, can recover the debt from the directors personally (with permission of the liquidator). c. Franz, Zac, and Jordan can be made personally liable for the company’s debts if they were incurred at a time when the company was trading whilst insolvent, and as a result they may be required to compensate the company. d. All of the other options for this question are correct.
Question
Franz, Zac, and Jordan comprised the board of directors for Ben & Jolly’s Pty Ltd, and took a business decision to invest heavily in a major software upgrade across the organisation. When the relevant debt was incurred, the company had many outstanding invoices from suppliers and was significantly behind in loan, rent, and tax payments. Which amongst the following statements is CORRECT?
Select one:
a. If the company has been trading whilst insolvent, a liquidator can recover the debts from the directors personally.
b. If the company has been trading whilst insolvent, a creditor, such as the supplier of the software, can recover the debt from the directors personally (with permission of the liquidator).
c. Franz, Zac, and Jordan can be made personally liable for the company’s debts if they were incurred at a time when the company was trading whilst insolvent, and as a result they may be required to compensate the company.
d. All of the other options for this question are correct.
Solution
The correct answer is:
d. All of the other options for this question are correct.
Explanation:
In many jurisdictions, directors can be held personally liable if they continue to trade while their company is insolvent. This is known as wrongful trading.
a. A liquidator can indeed pursue directors personally to recover debts if the company has been trading while insolvent.
b. Similarly, a creditor (with the permission of the liquidator) can also recover the debt from the directors personally if the company has been trading while insolvent.
c. If the debts were incurred while the company was insolvent, the directors can be made personally liable and may be required to compensate the company.
Therefore, all of the options are correct.
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