In the matter of Squirrel Limited (In Liquidation) [2021] NSWSC 1658, the Court considered an application for summary judgement against a director for Insolvent trading under the Corporations Act 2001 (NSW). The plaintiffs, being joint liquidators of the company, commenced proceedings against the directors and sought declarations that the Company’s directors had contravened s 588G(2) and orders pursuant to section 588M of the Corporations Act, which requires the directors to pay the Company the same amount of damage suffered by creditors as a result of the contravention of the Act.

Settlements were reached between the plaintiffs and some of the directors, but the remaining defendant failed to file a Notice of Appearance or a Defence, so the plaintiffs applied for summary dismissal against him pursuant to rule 13.1 of the Uniform Civil Procedure Rules 2005 (NSW). This action requires the Court to be satisfied that there is no underlying defence or that any such defence had no more than a fanciful prospect of success, such that the outcome was so certain that it would be an abuse of process to allow the action to proceed in the Courts.

The Court found that there was a high degree of certainty that a reasonable person in the defendant director’s position would have been aware of the Company’s limited revenue, its net losses during 2018 and prior financial years, and its inability to pay a significant proportion of its trade creditors within 90 days. The Court was thereby satisfied that the defendant director had no defence to the claim of insolvent trading. This case demonstrates the strict director obligations in relation to insolvent trading.

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