Table Of ContentJohn Gooley dedicates this book to his wife, Sylvia, and to his
mother, Doreen.
Mitchell Gooley dedicates this book to his partner, Sandra.
Both authors would also like to acknowledge the encouragement
and support from the other members of their family, particularly
Nathan, Toni, Andrew, Kim and Liam.
INSOLVENT TRADING AND
FRAUDULENT TRADING IN
AUSTRALIA
REGULATION AND CONTEXT
John Gooley
BA LLM (Hons) (Syd), Dip Ed (SCAE)
Mitchell Gooley
BCA LLB (Wollongong), GDLP (ANU)
LexisNexis Butterworths
Australia
2016
LexisNexis
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National Library of Australia Cataloguing-in-Publication entry
Creator: Gooley, J. V. (John V.), author.
Insolvent trading and fraudulent trading in
Title:
Australia: regulation and context.
9780409343915 (pbk).
ISBN:
9780409343922 (ebk).
Notes: Includes index.
Bankruptcy—Australia. Corporation law—
Australia. Fraud—Law and legislation—
Subjects:
Australia. Stocks—Law and legislation—
Australia.
Other
Gooley, Mitchell, author.
Creators/Contributors:
Dewey Number: 346.940078
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PREFACE
The incurring of debts by companies in circumstances of
insolvency is a situation which has attracted extensive
commentary and legislative reaction. Initially, legislators saw the
need to regulate fraudulent conduct by persons in carrying on any
business of the company and, to that end, enacted legislation
which imposed both civil and criminal consequences in cases of
proven breach. Later, that regulatory conduct was broadened in
order to cover a form of illegitimate trading in circumstances
where a company was insolvent, but where the company’s
business had not been carried on with intent to defraud, or for any
fraudulent purpose. That particular trading, known in Australia as
insolvent trading, originally attracted criminal liability only.
Subsequently, the consequences were expanded so as to render
persons, who had been criminally convicted, liable without limit
for payment of the whole, or any part, of debts incurred in breach
of the particular legislation. Importantly, the regulation of
insolvent trading had application to company directors who had
not acted fraudulently but who may have been reckless in their
dealings with creditors of the company.
These legislative developments are particularly important in
corporate law. The decision to regulate fraudulent conduct in the
way contained in s 592(6) of the Corporations Act is not
controversial, and accords with general public policy regulating
deceitful and/or fraudulent acts. However, the expansion of the
regulatory regime to deal with insolvent trading, in circumstances
where there is no suggestion of fraudulent intent or deceit by
those acting on behalf of or as the corporate entity when
incurring a debt, opens up a legitimate line of inquiry centring
upon the appropriate boundaries to be placed upon
entrepreneurial risk-taking. This is particularly so in the context of
where a creditor has dealt with a corporate entity which has
incurred a debt. To what extent should legislators provide a
statutory remedy to such creditors in circumstances where the
conduct involves the incurring of a debt between the company
and a creditor?
In relation to the regulation of insolvent trading, the objectives
behind such regulation are examined together with the way both
state and Commonwealth legislators have chosen to curb
entrepreneurial risk-taking thereby restricting reliance on the
separate corporate legal entity. To this end, the methodology
chosen is to examine the notion of limited liability in its
application to companies and to analyse the enhanced duties that
have been imposed on directors. This analysis then provides the
background setting for the operation of the applicable legislation
which regulates insolvent trading.
The aim of this book is to explore the historical and current
provisions which have regulated and which regulate both
fraudulent trading and insolvent trading in Australia. This
exploration will include an examination of the consequences,
including available statutory remedies in cases where there is
proven breach. Further, although emphasis will be placed upon the
provisions applicable to companies in Australia, a comparison is
also offered in the context of the relevant regulatory provisions
relating to incorporated non-profit associations and co-operatives.
As part of this analysis, an examination is also made of the courts’
consideration of those provisions amid heightened community
expectations in relation to appropriate corporate behaviour in
circumstances of corporate insolvency. In addition, reflection on
similar overseas regulatory provisions and the judicial
interpretation of those provisions is given. Finally, as at the time of
writing, further changes to the regulations have been
foreshadowed. These proposals have been referred to in Chapter 10.
Both the authors would like to thank their family for their
support and encouragement throughout this project. In particular
John would like to thank his wife Sylvia, who assisted with much
of the administration associated with this book. Mitchell would
like to thank his partner Sandra, whose love and support made the
task of co-authoring this book far less daunting.
In addition, we would like to thank Georgina Gordon, our
commissioning editor from LexisNexis Butterworths, for her
suggestions, assistance, professionalism and encouragement. We
are similarly indebted to Pamela O’Neill, our former
commissioning editor who effectively made this work happen. In
addition, we give a special thanks to Annabel Adair, our editor.
Once again Annabel’s attention to detail, her suggestions, tireless
work ethic and professional attitude all contributed immensely to
the production of this work. We would also like to thank the rest
of the production team.
The law is stated as far as possible as at 1 September 2016.
John Gooley and Mitchell Gooley
September 2016
TABLE OF CASES
References are to paragraph numbers
3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371; 4 ACLC 185 ….
4.82, 4.101, 4.109, 4.116, 4.118, 4.120, 4.122, 4.126, 4.183, 4.185, 4.187,
4.192, 4.210, 5.35, 5.184, 5.250, 5.275, 5.297, 6.44, 6.46, 6.47
— v Watt; NEC Home Electronics Australia Pty Ltd v White (1985)
3 ACLC 324; (1984) 2 ACLC 621 …. 1.16, 4.14, 4.89, 4.204, 5.122
67 Budd Street Pty Ltd, Re v Commonwealth (1984) 2 ACLC 190 ….
3.32
A
Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 …. 3.70, 3.71,
3.90, 3.91
Abraham v Tunalex Pty Ltd (1987) 5 ACLC 888 …. 3.81
Adams v Cape Industries plc [1990] Ch 433 …. 2.31, 2.35, 2.39
Adey v Arnold (1852) 2 De GM & G 432; 42 ER 940 …. 5.141, 5.186
Adnot Pty Ltd, Re (1982) 7 ACLR 212 …. 5.228
Advance Bank Australia Ltd v FAI Insurances Ltd (1987) 5 ACLC 725
…. 3.131
Aequitas Ltd v Sparad No 100 Ltd (formerly Australian European
Finance Corp Ltd) (2001) 19 ACLC 1006 …. 3.69
Ailakis v Olivero (No 2) (2014) 100 ACSR 524 …. 3.17
Ajayi v Briscoe; State Rail Authority of New South Wales v Heath
Outdoor Pty Ltd (1976) 7 NSWLR 170 …. 4.131
Akai Pty Ltd (in liq) v Ho (2006) 57 ACSR 456 …. 8.9
