During November of last year a conviction was secured against a former company director for ‘insolvent trading’, among other charges. Ms Anula Kumari Kauye (Kauye),a former director of International Consulting Group Pty Ltd (ICG) was sentenced to three years and two months imprisonment.
Sentencing by the Court included a 12 month term for insolvent trading. The Australian Securities Investment Commission (ASIC), alleged that Kauye allowed the company to incur debts of over $100K to unsecured creditors between 2003 and 2004.
The ASIC release states that she “had previously entered pleas of guilty in the County Court of Victoria to insolvent trading, theft, and providing false information in an affidavit to the Victorian Supreme Court.”
It is certainly a credit to ASIC that it successfully obtained a conviction, particularly when the outcome was a jail sentence, which is not frequently achieved.
ASIC Commissioner, Michael Dwyer, said “Directors must be aware that they breach the law if they incur debts when a company is insolvent or likely to become insolvent. The law is designed to deter directors from incurring debts to unsuspecting creditors of a company. Directors should take action early and seek appropriate advice.”
Of course many (perhaps most) company liquidations involve some pre liquidation period of insolvent trading. After all, even the most efficient of company directors will take some time to analyse trading figures, to look for alternative funding, to take advice and to consider the options. The problem is not with those directors who take a little time to take the appropriate action, but rather with those who continue to trade their insolvent company, month after month and at the creditors cost, with no objective expectation that the company will recover. In many cases such directors continue to take a salary and other benefits from the insolvent company.
Prosecutions are difficult and require a high level of proof, but most creditors would applaud ASIC taking even more actions of this type. Also, where possible, actions should be commenced as soon as possible, as it seems clear that the wheels of justice turn only slowly.