Presumption of insolvency due to failure to keep financial records as required
Quick Take
1Where a company's financial records are so deficient that they do not correctly record and explain transactions, financial position and performance — including pervasive errors such as recording liabilities as negative values, failing to prepare financial statements for five consecutive years, and failing to reconcile accounts — the presumption of insolvency under s 588E(4) arises for the entire period of non-compliance and is not rebutted by bare denials unsupported by evidence.
2A default fee triggered only by the company entering voluntary administration is not a contingent liability incurred at the date of entering the finance facility; it arises after the administration date and is not recoverable as an insolvent trading debt. Similarly, recourse fees for which there is no evidence of the dates of issue cannot be included.
3A sole director who admits knowledge of the company's financial position, business affairs and ability to pay debts, yet fails to keep adequate records and allows tax and trade debts to accumulate unpaid, satisfies both limbs of s 588G(2) — subjective awareness and the objective reasonable director test — for reasonable grounds to suspect insolvency.
