Hi, I am studying accounting and this subject is about company law (2106AFE).

Thisassignment needs to be answered as ILAC form which are Issue, law, application and conclusion.

Laws and Cases are based on Corporation act 2001.

Please look overWorkshop example andDiagrams, then accept the question please.

Workshop Assessment Question (final) is the question that you will need to solve and analysis. Thank you!

Diagrams: Duty to prevent insolvent trading Is ue: Does section 58 G ap ly to [name of relevant director]? 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 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 nonpayment of debts; liquidity ratio