Trusty Financial Services Pty Ltd (in liq) (the "company") was formed in July 2007 by Mr Black and Mr Murray. The company provided financial advisory services to clients. At the time of the company's incorporation, Mr Black and Mr Murray were the company's directors, however, in April 2016, Mr Murray resigned as a director and was replaced by Mrs Wang.

In May 2016 the company borrowed $500,000 from the local bank. The loan documents were signed by Mr Black and Mrs Wang. The amount of that loan was unsecured. In September 2016 the company borrowed a further $500,000 from the local bank. The further loan documents were also signed by Mr Black and Mrs Wang. This loan was also unsecured.

Neither of the two loans to the local bank were repaid by the company and the funds were expended in the normal course of the company's business. In October 2017 the company was wound up upon the application of the local bank in consequence of defaults on the loans. As at the time of winding up, Mr Black and Mrs Wang were the company's sole directors. There were insufficient assets available to repay the company's debt to the local bank.

The liquidator of the company now seeks to recover from Mr Black and Mrs Wang an amount equivalent to the amount outstanding to the local bank on the basis that, according to the liquidator, at the time the loans were entered into by the company, the company was insolvent or became insolvent in consequence of incurring those loans.

You are required to advise whether Mr Black and Mrs Wang (or indeed anyone else) will be liable to compensate the company for any amount should the liquidator bring proceedings. Your response should include an analysis of the essential elements that are necessary to be shown for the liquidator to be successful and an analysis of any statutory defence that the directors may have to any such application, and any judicial discretion to excuse a director from liability