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What is the standard of care owed by a company director to creditors during insolvency under Australian law?

AUS - NSWCorporate / InsolvencyAustLII + Westlaw
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52 cases reviewed · 8 cited · 0 flagged · 47 seconds

Research answer — AU Corporate Law · s.588G

Under Australian law, company directors owe a duty of care to creditors once the company is insolvent or approaching insolvency — a duty distinct from general statutory obligations under the Corporations Act 2001 (Cth).

The leading authority is ASIC v Healey [2011] FCA 717, which confirmed directors cannot delegate their obligation to understand the company’s financial position. The standard requires directors take reasonable steps to prevent insolvent trading under s 588G.

In Hall v Poolman (2007) 215 FLR 243, the NSW Supreme Court held the creditor-facing duty activates when there are reasonable grounds to suspect insolvency — not merely upon formal insolvency appointment.

Recent High Court authority in Cassimatis v ASIC [2020] FCAFC 52 confirmed that directors must maintain an adequate understanding of the company’s affairs. The standard is objective — not what the director knew, but what a reasonable person in that position would have known.

8 cases cited

ASIC v Healey

[2011] FCA 717 · AU

Director duty - cannot delegate financial understanding

Hall v Poolman

[2007] 215 FLR 243 · AU

Duty activates on reasonable suspicion

Cassimatis v ASIC

[2020] FCAFC 52 · AU

Objective standard - reasonable person test

+5 more cases

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Sources

AustLII · verified

Westlaw AU · verified

LexisNexis · verified

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