According to section 588G of Corporation Act 2001, when directors make a company incur a debt, and

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Question:

According to section 588G of Corporation Act 2001, when directors make a company incur a debt, and any reasonable director, in the same position, would have known the company would be insolvent if it incurs the debt, if the company becomes insolvent as a result of the debt, the company directors are liable for violating their duty to prevent insolvent trading.

Certainly, Dixie was just an advisor of her three daughters who had a lot of experience with business. However, she was not a director in Green Savings Pty Ltd. For that reason, she did not owe the company a duty to prevent insolvent trading.

On the other hand, Annie was an accountant and a director of Green Savings Pty Ltd. She knew the financial position of the company. For that reason, she advised the rest of directors against the tender that later made the company insolvent. Therefore, under section 588G of Corporation Act 2001, she never violated her duty to prevent insolvent trading in the company.

Beverley and Cindy supported the idea of taking the underpriced tender, which made the company incur debts that led to its insolvency. They ignored suggestions of Annie, an experienced and qualified accountant, that were against their ideas.

Therefore, Beverley and Cindy carelessly made a decision that made their company incur debts, which any reasonable person, in the same position, would not have done: given the fact the most knowledgeable director, on matters regarding investment, was against the idea. For that reason, and as revealed in Hall v Poolman case, they violated their duty to prevent insolvent trading.

According to section 588J of corporation act 2001, when company directors are liable for insolvent trading, as a remedy for their company, the directors are liable for compensating their company an amount equal to the loss the company creditors incurred.

Therefore, as a penalty for their offence, under section 588J of Corporation Act 2001, Beverley and Cindy are liable for compensating Green Savings Pty Ltd amount equal to loss its creditors incurred as a result of their actions: failure to prevent insolvent trading.

using IRAC method.