Arthur and Beatrice are husband and wife and are the only directors of a company called Boat Parts Pty Ltd. Unfortunately, the business has been losing money due to bad decision making and lack of oversight by both Arthur and Beatrice. Arthur and Beatrice know that the company cannot pay its debts as they fall due and do not want to be embarrassed at their local yacht club by admitting their company is failing. Arthur and Beatrice decide to continue trading, purchasing equipment and borrowing from the last few creditors which have agreed to lend money. Arthur and Beatrice decide as a gesture of goodwill to repay their favourite creditors the full amount owed plus a little extra one week before the company enters liquidation.

(a) Explain the risk for Arthur and Beatrice if they continue to allow the company to trade whilst it is insolvent.

(b) If the company goes into liquidation and does not have sufficient funds to pay back the money owed to the creditors, what power does the liquidator have?