Gino and Daniel both served on ABC Pty Ltds board of directors during the 2018/19 financial year. After noticing a significant drop in orders, Gino and Dan were heard talking about and sharing their concerns that the company would be facing insolvency if sales dont pick up..

Gino: Concerned about breaching Director Duties, Gino met with Tim, the companys CFO, around 20 June 2018 and expressed concerns about possible insolvent trading. Tim, responded dont worry Gino weve got a safety net in place weve been through a lot worse.. trust me, we will be okay. Later that same day, Gino suffered a heart attack during a tennis game and was hospitalized for 3 months.

Daniel: Also concerned about breaching possible Director Duties, Daniel resigned as Company Director on 20 June 2018.

Later investigations reveal that the company became insolvent on the 28th June 2018 yet kept trading for a further 2 weeks before being reported to ASIC.

QUESTIONS (a) Discuss whether Gino breached any Director Duties (Do not refer to possible defences)

(b) Discuss whether Dan breached any Director Duties (Do not refer to possible defences)

(c) Discuss whether Gino has a defence under CA s 588H

(d) Discuss whether Dan has a defence under CA s 588H

SUggest answers

(a) Discuss whether Gino breached any Directors Duties

Legal Rule: According to CA s 588G, a person (even retired persons), will breach Duty 2 if he or she was a Director when the Company incurred a debt; Secondly, the Company was nearing insolvency/ actually insolvent at the time of the debt / or became insolvent as a result of the debt; and lastly, at the time of the debt, there were reasonable grounds for suspecting insolvency.

Application: Here the facts state that

Conclusion: Clear that Gino

(b) Discuss whether Dan breached any Directors Duties use the same structure as (a) above

(c) Discuss whether Gino has a defence under CA s 588H

Legal Rule: According to CA s 588H, a person in breach of CA s 588G, could escape liability if he or she: Had reasonable grounds to expect solvency (CA s 588H(2)); or reasonably relied on information provided by others that the company was solvent (CA s 588H(3)); or was absent from management due to illness or some other good reason (CA s 588H(4)); or took reasonable steps to prevent incurring the debt (CA s 588H(5)); or took action to appoint an Administrator of the company (CA s 588H(6))

Application: Here the facts tell us

Conclusion: Clear that Gino

(d) Discuss whether Dan has a defence under CA s 588H use the same structure as (c) above