Hello again.

This paragraph is same with previous I.L.A.C solving paragraph.

But different question in there. It is for more for 'Remedy' so you can take less time to solve it because you know the paragraph.

Have a look attachment for doing that and please care for me.

No. Workshop Objective Key Law Key Reading Know it? (Y/N) 1 Define corporate governance and describe how it relates to directors duties - [13.1] - [13.3] 2 Identify and describe the differences between statutory duties and general law fiduciary duties - [15.1] & [15.9] 3 Identify and describe the persons who are owed directors' duties, in particular the shareholder primacy rule AWA Case study; Kinsela v Russell Kinsela Pty Ltd*; Darvall v North Sydney Brick & Tile; Brunninghausen v Galvanics* [15.2] - [15.8] 4 Explain and apply section 181(1)(a), in particular the key words: \"officer\"; \"exercise powers and discharge duties\"; \"good faith\"; \"best interests of corporation\No. Workshop Objective Key Law Key Reading 1 Explain and apply the difference between a direct and indirect conflict of interest Transvaal Lands Co v New Belgium*; Aberdeen Railway v Blaikie Bros* [16.2] [16.3] 2 Explain and apply the circumstances in which a director has to disclose their conflict of interest to: (a) directors; and (b) shareholders 191; 193; McGellin v Mount King Mining NL*; Furs Ltd v Tomkies* [16.8], [16.9], [16.11] 3 Explain and apply the circumstances in which a director can vote and/or be present at a meeting 194, 195 [16.11] 4 Explain and apply section 182, in particular the key words \"officer\"; \"improperly use position\"; \"gain an advantage / cause detriment\" with respect to the relevant case law 182; Cook v Deeks*; Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd*; Diakyne Pty Ltd v Ralph; Grove v Flavel; Mordecai v Mordecai (last 3 cases on video recording); Queensland Mines (QM) v Hudson; ASIC v Adler [16.10] 5 Explain and apply section 183, in particular the key words \"officer\"; \"obtains information because ... officer or employee\"; \"improperly use the information\"; \"gain an advantage / cause detriment\" 183; McNamara v Flavel; ASIC v Vizard* [16.10] Know it? (Y/N) - Note: Cases denoted by * are provided in the textbook. Otherwise they are summarised in this workbook. 1 Contents Directors' Duties: Conflicts of Interest..........................................................................3 Video: Conflict of interest..........................................................................................3 Video diagrams: Conflict of interest..........................................................................3 What is a conflict of interest?....................................................................................5 What is the directors' interest?..................................................................................6 When, how and who do the directors disclose their interest?...................................6 Can directors vote and be present at the meeting?..................................................7 Directors' Duties: Improper Use of Position.................................................................8 Video: Improper use of position................................................................................8 Video diagrams: Improper use of position.................................................................9 Directors' Duties: Improper Use of Information..........................................................12 Video: Improper use of information.........................................................................12 Video diagrams: Improper use of information.........................................................13 Video: ASIC v Vizard...............................................................................................14 Workshop exercises: to be completed in class..........................................................16 Workshop Exercise 1..............................................................................................16 Workshop Exercise 2..............................................................................................16 Workshop exercise: for you to do before class..........................................................17 Workshop Revision Question.....................................................................................18 Workshop Revision Answer.....................................................................................19 Directors' Duties: What to put in your Law and Application........................................21 What makes a great answer on good faith?...........................................................21 What makes a great answer on proper purpose?...................................................21 What makes a great answer on improper use of position?.....................................22 What makes a great answer on improper use of information?...............................22 What makes a great answer on conflicts of interest?.............................................22 2 Directors' Duties: Conflicts of Interest Video: Conflict of interest This video provides a detailed summary of the three major issues associated with a conflict of interest. First, is there a conflict of interest? Second, does the conflict of interest need to be disclosed, and if so, to whom? Third, can the director with the conflict of interest vote and/or attend Board meeting during which a transaction involving the conflict of interest is being considered? Video: Duty with respect to conflict of interest Video diagrams: Conflict of interest 3 4 What is a conflict of interest? Directors may put themselves in a situation where their duties to the company and their personal interests may conflict. Directors breach their fiduciary duty if they have undisclosed interests in transactions with their company as they are then in a position where their personal interests conflict or MAY conflict with the company's interests. 5 The directors' duty to disclose conflicts of interest overlaps with the directors' other statutory duties, such as the duty to act in good faith in the interests of the company (s 181) and not improperly use the position of director (s 182). For example, the requirement to disclose is designed to prevent directors from improperly making a profit from their position. What is the directors' interest? The directors' undisclosed interest can be direct or indirect. A director that contracts personally with the company has a direct interest. An indirect interest in a contract occurs when the director is a director or shareholder of another entity that contracts with the company. Case example is Transvaal Lands Co v New Belgium (Transvaal) Land & Development Co When, how and who do the directors disclose their interest? Shareholders at general meeting The common law rule is that disclosure of a conflict of interest must be made to the general meeting for the purpose of obtaining the member's consent (Furs Ltd v Tomkies). That consent has the effect of ratifying the director's actions. The company's constitution can override this rule so that approval by the Board of directors is only required where there is a conflict of interest. A less strict approach to the rule was used in Queensland Mines Ltd v Hudson. Disclosure to the board was sufficient even though no formal disclosure was made to the company's general meeting. The disclosure was made to the Board, who represented the two shareholders as nominee directors. So effectively disclosure to the Board was disclosure to the members. There are two reasons why you need to know this common law rule. First, section 191 (see below) does not require disclosure of conflicts to be made at a general meeting. Second, section 193 provides that the CA has effect in addition to, but not in derogation of, any common law rule or constitution provision about conflicts of interest. Directors Section 191(1) CA provides that: A director of a company; 6 who has a material personal interest in a matter; which relates to the affairs of the company; must give the other directors notice of the interest unless: o an exception under s191(2) applies; or o the company is a sole director Pty company (section 191(5)). Exceptions There are a number of exceptions under section 191(2). For example: The interest arises in relation to the director's remuneration; The interest relates to a contract which is subject to the approval of members and will not impose any obligation on the company if it is not approved; The director has provided a guarantee or other form of security on a loan to the company; Directors' indemnity insurance; The company is a Pty company and the other directors are aware of the nature and extent of the interest and its relation to the affairs of the company; The director provides a standing notice (refer section 192). Notice of Interest The notice must give details of the nature and extent of the interest, the relation of the interest to the affairs of the company and the notice must be given at a directors' meeting as soon as practicable after the director becomes aware of the interest (s191(3)). The details must be recorded in the minutes of meeting. Can directors vote and be present at the meeting? The answer to this question depends on whether the company is Pty or public. Proprietary Company Section 194 allows directors of proprietary companies to have a material personal interest in contracts with the company and vote on any matters related to the interest provided that: 7 The director discloses the nature and extent of the interest at a director's meeting before entering the transaction; or The interest does not need to be disclosed under s 191 CA. If the disclosure is made after entering the transaction, the company can avoid the transaction and the director is not entitled to retain the benefits under the transaction. Note that section 194 is a RR, so the company's constitution can modify the rules, for example, place restrictions on the director's voting entitlement. Public Company Section 195 CA provides that: A director of a public company; who has a material personal interest in a matter; that is being considered at a directors' meeting; is prohibited from voting on the matter and being present while the matter is being considered, unless: o disclosure of the interest is not required under s191; o the other directors pass a resolution approving the director's entitlement to vote and be present (section 195(2)); or o the ASIC makes a declaration under section 196. If there are not enough directors to form a quorum because of the directors' inability to vote and be present at the directors' meeting, then a director(s) can call a general meeting for members to pass a resolution dealing with the matter (s 195(4) CA). Directors' Duties: Improper Use of Position Video: Improper use of position Section 182 CA provides that: An officer or employee of the corporation; Must not improperly use their position; 8 To gain an advantage for themselves or somebody else; or Cause detriment to the corporation A person \"involved\" (refer section 79) in the contravention is deemed to have breached section 181(2). The video below (first 8 minutes only) provides a detailed explanation of section 182 with relevant references to case law. Video: Duty not to improperly use position Video diagrams: Improper use of position Issue: Did [insert person name] breach their duty under s 182? officer or employee (s 9) Section 182: Must not improperly use position Grove v Flavel: meaning of \"improper\" ASIC v Adler: focus on specific duties of that officer Section 182: To o Make a gain for the officer o Make a gain for somebody else o Cause detriment to the company ASIC v Vizard: Purpose, not effect, of improper use Section 182 examples: o Using company funds for own purpose (Adler; Diakyne Pty Ltd v Ralph) o Diversion of corporate opportunity (Regal Hastings (Ltd) v Gulliver; Cook v Deeks, Mordecai v Mordecai; Holyoake Industries (Vic) Pty Ltd v V-Flow Pty Ltd) o Repayment of loans to director ahead of other creditors (Grove v Flavel) o Company consent to take commercial opportunity suggests that conduct is not improper (Queensland Mines (QM) v Hudson) 9 Mordecai v Mordecai Morpack Packaging Directors Joseph David Meyer Dies leaves Shares Infant son takes customers Rival company How does sections 182 and 183 relate to duty of disclosure (s 191)? The duty to avoid conflicts of interest is expressed in the Corporations Act through s182 and s183 in a direct way by prohibiting misuse of position and information. For example, an officer makes a personal gain by using their position or company information without disclosing the personal gain to the Board or the shareholders at general meeting. What does \"improperly\" mean? \"Improperly\" refers to conduct that is inconsistent with the \"proper\" discharge of the duties, obligations, and responsibilities of the officer (Grove v Flavel), such as a breach of fiduciary duty or acting without authority. Section 182 does not impose a 'universal standard' on all directors, rather impropriety is determined by reference to the particular duties and responsibilities of that particular officer. Your Thoughts: What were Rodney Adler's specific duties in relation to HIH and HIHC before the $10 million payment could be made to PEE? What made his conduct improper? How do you work out \"advantage\" or \"detriment\"? An officer will breach s182 even if the officer does not actually gain an advantage, or even if the company does not suffer a detriment. The test is the purpose, not the effect, of the improper use of position (ASIC v Vizard). 10 So, if the purpose of the officer's improper action was to make a gain for him or herself, there would be a breach of section 182 even if the officer made a loss!! What are some actions which have breached the rule? Using company funds for personal purposes (ASIC v Adler) Payment of a discretionary bonus (Diakyne v Ralph) Diversion of a corporate opportunity (Cook v Deeks; Mordecai v Mordecai) Case Example: Mordecai v Mordecai (applied Cook v Deeks) Facts: 3 Brothers carried on business as Morpack Packaging Pty Ltd. When one died the other two set-up a rival Co and took over all of Morpack's customers (the dead brother having left his shares to them as trustees for his infant son, but having excluded his ex-wife). She (on the infant son's behalf) sued alleging breach of trust and breach of fiduciary duties. Held: The two brothers had breached their duties by deliberately closing down Morpack for their own benefit. They also depreciated the value of the business by taking all of Morpack's customers. What are some actions which have not breached the rule? Company Consent for director to take up commercial opportunity The High Court has stated that shareholder consent cannot operate to excuse liability from a breach of the statutory duties in Pt 2D.1 (Angas Law Services Pty Ltd (in liq) v Carabelas). However, the Court did say that shareholder consent would be relevant in assessing whether the conduct was improper. A case example in which shareholder consent ensured the conduct was not improper was Queensland Mines v Hudson. Case Example: Queensland Mines (QM) v Hudson Facts: Hudson had worked for QM (he was the MD) and had negotiated with the Tasmanian Government for a lease, originally on behalf of QM. Later QM said it did not want the lease. So Hudson made full disclosure of his intention to personally take up the lease and resigned as MD. He set up his own company and took up the lease. He met all expenses and ran all the risks until he proved the existence of valuable deposits. Although disclosure to the board in the circumstances where the company renounced the opportunity, appeared insufficient, there were in fact only two shareholders and they were represented on the board of directors. Hudson was a director of the 49% shareholder, one was a nominee director of the 51% shareholder and the remaining director of QM was also a director of the 51% shareholder. 11 Held: Hudson not liable as the board of QM knew what he was doing and accepted what he did. Hudson had fully informed QM's shareholders (via the board meeting) as to his interest in the lease, and QM had renounced its interest and assented to H proceeding with the venture alone. Directors' Duties: Improper Use of Information Video: Improper use of information Section 183 provides that: A person who obtains information because they are, or have been, an officer or employee of a corporation; Must not improperly use the information; To gain an advantage for themselves or someone else; OR To cause detriment to the corporation. A person \"involved\" (refer section 79) in the contravention is deemed to have breached section 183(2). Note: Section 183 also applies to former directors, officers or employees. The rules discussed in section 182 about \"improperly\No. Workshop Objective Key Law Key Reading 1 Duty of care and diligence: Explain and apply section 180 by measuring the officer's conduct against the standard of care, which involves \"corporation's circumstances\"; \"position\"; and \"responsibilities\" 180(1); Daniels v Anderson*; CBA v Friedrich*; ASIC v Healey*; ASIC v MacDonald (No 11)*; Morley v ASIC; ASIC v Rich*; Gold Ribbon (Accountants) P/L v Sheers [17.3] - [17.21] 2 Explain and apply judgment defence 180(2) and (3); ASIC v Adler* [17.22] the business Duty to prevent insolvent trading Know it? (Y/N) [18.11] 3 Step 1: Within section 588G(1) apply the key words \"debt is incurred\"; \"insolvent\"; and \"reasonable grounds for suspecting\" 588G(1); 588E(3), (4); 95A; ASIC v Plymin*; Powell v Fryer*; Hawkins v Bank of China [18.12] - [18.15] 4 Step 2: Within section 588G(2) apply the subjective or objective tests 588G(2) [18.16] 5 Step 3: Apply the defences under section 588H Metropolitan Fire Systems v Miller*; ASIC v Plymin*, Tourprint International P/L* v Bott; DCT v Clark* [18.17] - [18.21] 6 Step 4: Apply and explain the three parties who can obtain a remedy 588M [18.22] 7 Explain and apply the rules on remedies including: \"civil penalty provision\"; \"pecuniary penalty\"; \"compensation\"; \"disqualification\" and \"criminal penalty\" which requires dishonesty and/or recklessness 1317E, 1317F, 1317H, 1317J, 184 8 Explain and apply if and when the company (though insurance, exemption or indemnification) and the Court can relieve an officer from liability for breach of duty 199A, 199B, 199C; 1317S; CBA v Friedrich 1317G, [15.17] and [15.22] [15.20] - [15.21] Note: Cases denoted by * are provided in the textbook. Otherwise they are summarised in this workbook. Contents Directors' Duties: Care and Diligence...........................................................................3 Video: Care and Diligence.........................................................................................3 Video diagrams: Care and Diligence.........................................................................4 Reliance on Others and Responsibility for Actions of Delegate...............................8 1 Directors' Duties: Prevent Insolvent Trading................................................................9 Video: Duty to prevent insolvent trading...................................................................9 Video diagrams: Duty to prevent insolvent trading.................................................10 Step 1: Does section 588G apply to the director?..................................................11 Step 2: Did the director breach section 588G?.......................................................13 Step 3: Are there any defences available to the director?......................................13 Step 4: What remedies are available?....................................................................15 Directors' Duties: Remedies.......................................................................................16 Declaration of Contravention..................................................................................16 Pecuniary Penalty...................................................................................................17 Compensation.........................................................................................................17 Disqualification........................................................................................................17 Criminal Penalties...................................................................................................18 Directors' duties: Relief from liability...........................................................................19 Company.................................................................................................................19 Court........................................................................................................................20 Workshop exercises: to be completed in class..........................................................22 Workshop exercise: for you to do before class..........................................................23 Workshop Revision Question.....................................................................................24 Workshop Revision Answer.....................................................................................25 Directors' Duties: What to put in your Law and Application........................................27 What makes a great answer on duty of care and diligence?..................................27 What makes a great answer on duty to prevent insolvent trading?........................27 Directors' Duties: Care and Diligence Video: Care and Diligence Directors are involved in managing a business with its attendant risks and uncertainties. As a consequence the law also provides that directors need to be provided with flexibility in how they exercise their management functions. Thus there is something of a conflict between the idea that through directors' decisions companies will undertake risky economic activity and the concept that 2 directors will take care in protecting the funds invested. In this area therefore there is something of a balancing act in establishing the duty. That balancing act involves giving a reasonable person the same office and duties as the director, and seeing what that reasonable person would do (or not do) having regard to the company's circumstances. The video below describes the duty of care and diligence with reference to the diagrams below. Video: Duty of care and diligence 3 Video diagrams: Care and Diligence Is ue: Did [insert person name] breach the duty of care and dilgence? 4 What is the rule? Daniels v Anderson Section 180(1) CA provides that a director or officer of the corporation must exercise powers and discharge duties with the degree of care and diligence that a reasonable person would exercise if they: were a director/officer of corporation in the corporation's circumstances; and occupied the office held by, and had the same responsibilities within the corporation as, the director / officer. 5 \"Corporation's circumstances\" The corporation's circumstances are a question of fact (i.e. you need to look at the evidence). Relevant circumstances that Courts have identified in previous cases include (CBA v Friedrich): Type of company; The size and nature of the business carried on by the company; The terms of the constitution; The composition of the Board; The distribution of work between the Board and other persons; The financial position of the company (ASIC v Rich) \"Office\" The degree of care (in many cases this is expressed as the \"standard of care\") varies depending on the type of office a person occupies and their responsibilities. The officer has minimum standards of care and diligence, whilst the responsibilities will have the effect of raising that standard of care. Non-Executive Director Remember that non-executive directors are not generally involved with the day-today management of the company's business and often rely on the CEO to properly carry out their roles as directors. The courts have set down minimum standards of care and diligence for non-executive directors. A key case is Daniels v Anderson. Executive Director Executive directors are appointed to manage the day to day operations of the company. As they possess a greater knowledge of the day-to-day operations of the company, executive directors are subject to a higher standard of care than nonexecutive directors. For example, an executive director must take reasonable steps to be in a position to guide and monitor the management of the company. Case examples include Daniels v Anderson and ASIC v Adler. Chairperson The chairperson of a company is subject to a higher standard of care and diligence than non-executive directors because of their special responsibilities. Remember earlier in the semester, we discussed the typical duties of a chairperson. A case example is ASIC v Rich. 6 \"Responsibilities\" In ASIC v Rich, the Court held that the officer's responsibilities are not their legal duties (e.g. duty to act in good faith) but the factual arrangements operating within the company and the officer's skills, qualifications and experience. The factual arrangements include: Arrangements flowing from the skills and experience the director brought to his or her office (e.g. chairing a Finance and Audit Committee of the Board when you are a professional accountant); Arrangements between the director and executive management or the director and Board about the work that the director is expected to carry out. Case examples include ASIC v Healey and Gold Ribbon (Accountants) Pty Ltd v Sheers Case Example: Gold Ribbon (Accountants) Pty Ltd v Sheers Facts: GR operated a scheme offering unsecured loans of up to $1 million to practising accountants, or their associates (the scheme). S was engaged to administer the scheme. GR obtained a loan facility from a bank. The bank then gave notice of the termination of its loan facility, and to this end GR gave notice of the termination of its loan agreements to its borrowers. Five borrowers defaulted under their loan agreements, and liquidators for GR were appointed. The liquidators started proceedings against Dunn, a GR non-executive director. Held: Dunn, as a non-executive director, was not required to give continuous attention to the affairs of GR. For the day-to-day management he was entitled to rely on those appointed by the board to fulfil that function. He was also entitled to rely on his co-directors or executives who were appointed to perform specific functions. Dunn failed to ensure the scheme was set up to comply with "accepted lending practices", namely, that the terms and conditions of the loans and the administrative procedures were such as to minimise the risk of defaults by borrowers. As the only member of the board who had experience in commercial lending, Dunn had a duty to give GR the benefit of that experience. On appeal Dunn was held not to be personally liable, as evidence indicates that the board would have approved these \"bad\" loans in any event - other GR directors stood to benefit from each loan transactions. Are there any defences to this rule? Yes. The business judgment rule provides protection to directors if the decisions were made in an honest, informed and rational way (even if the decisions proved to be bad for the company commercially). The rule is designed to remove uncertainty 7 about the execution of director's duties and to encourage risk taking (within reasonable limits) and entrepreneurship. Note that the business judgement rule does not protect directors from breach of other statutory duties (eg s 181). It only applies to a breach of the statutory care and diligence duty under s 180(1). What is the defence? Section 180(2) provides that a director or other officer of a corporation who makes a business judgment is taken to meet the requirements of section 180(1) in respect of the judgment if they: make the judgment in good faith for a proper purpose; and do not have a material personal interest in the subject matter of the judgment; and inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and rationally believe that the judgment is in the best interests of the corporation. When is a judgment a 'rational one'? Section 180(2) states that the officers' belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold. What is a business judgement? Section 180(3): Business judgment means any decision to take or not take action in respect of a matter relevant to the business operations of the corporation. Your Thoughts: Why couldn't Adler and Williams rely on the Business Judgment rule as a defence to section 180? Reliance on Others and Responsibility for Actions of Delegate Section 189 provides that it is reasonable for a director to rely on information or advice provided by other persons specified in the section, where the reliance is made in good faith and after making proper assessment of the information or advice. This can assist in the director's defence to a breach of statutory duty under sections 180 - 183. 8 Section 190(1) provides that if the directors delegate a power under s198D, they are responsible for the exercise of the power by the delegate as if the power had been exercised by the director him/herself, subject to the exceptions in section 190(2). Please read these sections and understand what they mean in relation to director's statutory duties. Note that these rules apply to directors only. Directors' Duties: Prevent Insolvent Trading Video: Duty to prevent insolvent trading A key advantage of limited liability is that it encourages entrepreneurship and potentially productive, but risky investment. However, this also has costs. Persons who extend credit to the company bear the risk of its insolvency. Directors are required to act in the best interests of shareholders. However, when the company is in financial difficulties or is insolvent, shareholders cease to be the key stakeholders, and directors must act in the best interests of creditors (Walker v Wimborne and Kinsella v Russell Kinsella Pty Ltd). This statutory duty to prevent insolvent trading was developed specifically to protect creditors. Answering a section 588G question involves four issues: 1. Does section 588G apply to [name of the relevant director]? 2. Did the [name of relevant director] breach section 588G? 3. Are there any defences available to [insert relevant director]? 4. What remedies are available to [person/company/government department who you are advising]? The video below provides a detailed explanation of section 588G with reference to the diagram below and case law. Video: Duty to prevent insolvent trading - Part 1 (Issue 1) Video: Duty to prevent insolvent trading - Part 2 (Issues 2, 3 and 4) 9 Video diagrams: Duty to prevent insolvent trading 10 Is ue: Does section 58 G ap ly to [name of rel vant director]? 11 Step 1: Does section 588G apply to the director? Under section 588G(1), section 588G applies to the director if: 1. The person is a director at the time the debt is incurred 2. The company: (a) is insolvent at the time the debt is incurred; OR (b) becomes insolvent by incurring the debt. 3. At the time the debt is incurred, there are reasonable grounds for suspecting that the company is insolvent, or will become insolvent Debt is incurred For example: The terms of a bank loan may require the company to make a monthly payment. That represents an unconditional obligation to pay money to the bank in the future. The debt is incurred when the loan contract is signed. A debt for rent is incurred when the tenant executes the agreement to lease, and not on the days when rent is due but not paid: Russell Halpern Nominees Pty Ltd v Martin. A case example of 'debt incurred' is Hawkins v Bank of China Case example: Hawkins v Bank of China Facts: Company A provided a guarantee to the bank that was owed money by Company B and Company C (Companies A, B, C were in the same corporate group). Company B and C were unable to repay their loans to the bank as they were insolvent. Held: A debt is incurred when, by its conduct or operations, a company has a conditional, but unavoidable, obligation to pay a sum of money at a future time. Company A incurred a debt to the bank when the guarantee was signed. At that time Company A had a conditional, but unavoidable obligation to pay a sum of money to the bank should Company B and C default on repayment of the loan. Insolvency Section 95A is the starting point for interpreting the word \"insolvent\". Section 95A defines insolvency. A person is solvent if the person is able to pay all the person's 12 debts, as and when they become due and payable. A person who is not solvent is insolvent..... Hmmmm.... The Courts work out when a company has the ability to pay debts by using a \"cash flow test\" and identifying indicators of insolvency. There are also presumptions of insolvency. Cash Flow test The cash flow test is this: are there sufficient cash resources to pay debts when they fall due? Cash resources include money which could be obtained through the sale of realisable assets or borrowing against the security of the company's assets (Powell v Fryer). Insolvency indicators In ASIC v Plymin & Ors, the Court provided a number of indicators of a company's insolvency: Poor relationship with financiers; Creditors unpaid outside trading terms, Special arrangements with selected creditors to pay the debt off, Legal documentation (e.g. summonses, solicitor's letters) relating to non-payment of debts; liquidity ratio