Attorney General for New South Wales v Barr

The Attorney-General for New South Wales brought proceedings against Mr Barr, seeking a declaration that Mr Barr had breached his duty as a director of a company by failing to take reasonable steps to prevent the company from incurring debts when there were reasonable grounds to suspect it was insolvent. The matter came before the Supreme Court of New South Wales, Court of Appeal.

The central legal issue before the Court of Appeal was whether Mr Barr had breached section 553(1) of the *Companies (New South Wales) Code* (the Code). This section imposes a duty on directors to take all reasonable steps to obtain the appointment of a liquidator or provisional liquidator when they suspect a company is insolvent. The Court was required to determine what constitutes "reasonable steps" in this context and whether Mr Barr's actions, or inactions, met this standard.

The Court of Appeal found that Mr Barr had failed to take reasonable steps to prevent the company from incurring further debts. The Court reasoned that a director's duty under section 553(1) is not merely to suspect insolvency but to act upon that suspicion by taking positive steps to appoint a liquidator. Mr Barr's reliance on the company's accountants and his belief that the company could trade out of its difficulties were found to be insufficient to discharge his statutory obligation. The Court emphasised that the purpose of the section is to protect creditors from further losses when a company is in a precarious financial position.

The Court of Appeal allowed the appeal, setting aside the decision of the primary judge. It declared that Mr Barr had breached his duty under section 553(1) of the Code.