THE CORPORATIONS LAW

CHAPTER 5 - EXTERNAL ADMINISTRATION

PART 5.7B - RECOVERING PROPERTY OR COMPENSATION FOR THE BENEFIT OF CREDITORS OF INSOLVENT COMPANY

Division 5 - Liability of holding company for insolvent trading by subsidiary

SECTION 588X   DEFENCES  

588X(1)  [Application]  

This section has effect for the purposes of proceedings under section 588W.

588X(2)  [Reasonable grounds to expect company solvent]  

It is a defence if it is proved that, at the time when the debt was incurred, the corporation, and each relevant director (if any), had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

588X(3)  [Reliance on competent and reliable person]  

Without limiting the generality of subsection (2), it is a defence it if is proved that, at the time when the debt was incurred, the corporation, and each relevant director (if any):

(a)  had reasonable grounds to believe, and did believe:

(i) that a competent and reliable person was responsible for providing to the corporation adequate information about whether the company was solvent; and

(ii) that the person was fulfilling that responsibility; and

(b)  expected, on the basis of the information provided to the corporation by the person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

588X(4)  [Illness of director]  

If it is proved that, because of illness or for some other good reason, a particular relevant director did not take part in the management of the corporation at the time when the company incurred the debt, the fact that the director was aware as mentioned in subparagraph 588V(1)(d)(i) is to be disregarded.

588X(5)  [Reasonable steps to prevent debt]  

It is a defence if it is proved that the corporation took all reasonable steps to prevent the company from incurring the debt.

588X(6)  [``relevant director'']  

In subsections (2), (3) and (4):

``relevant director'' means a director of the corporation who was aware as mentioned in subparagraph 588V(1)(d)(i).