N A Kratzmann Pty Ltd (in liq) v Tucker (No 2)

The High Court of Australia considered an appeal concerning the liability of a director for company debts. The appellant, N A Kratzmann Pty Ltd (in liq), was the liquidator of a company, and the respondent, Tucker, was a director of that company. The dispute arose from the company's inability to pay its debts, leading to the liquidator seeking to recover from the director personally.

The central legal issue before the High Court was whether the director, Tucker, had acted in contravention of section 303 of the Companies Act 1961 (Qld) by failing to take all reasonable steps to avoid incurring debts when there were reasonable grounds to believe the company was unable to pay its existing debts. The court had to determine the scope of the director's personal liability under this provision.

The court reasoned that section 303 imposed a positive duty on directors to exercise reasonable care and diligence in managing the company's affairs, particularly concerning the incurring of debts. It was held that the director's knowledge of the company's financial position was crucial. If a director knew, or ought to have known, that the company was insolvent or likely to become insolvent, and continued to incur debts, they would be in breach of their duty. The court applied principles of corporate law concerning directors' duties and the concept of insolvency, focusing on the director's actual or constructive knowledge of the company's financial state.

The High Court allowed the appeal, finding that the director had failed to take reasonable steps to avoid incurring debts when he ought to have known the company was unable to pay them. The case was remitted to the Supreme Court of Queensland for further proceedings to determine the quantum of the debt for which the director was liable.