Preiner v Shin

In Preiner v Shin, the liquidator of a company sought a declaration and damages from a former director, Shin, for breaching statutory duty to prevent insolvent trading under section 588G of the Corporations Act 2001 (Cth). The liquidator argued that Shin failed to prevent the company from incurring debts when it was insolvent or became insolvent as a result of those debts. The court was required to determine if Shin had reasonable grounds to suspect the company was insolvent, ascertain the date of insolvency, and assess whether the date of insolvency triggered the "safe harbour" provisions of section 588GAAA of the Corporations Act.

The court considered the evidence regarding when Shin first had reasonable grounds to suspect insolvency and whether the company was insolvent at that time. The court examined the financial position of the company, including its debts and liabilities, and the knowledge Shin had about the company's financial situation. The court also assessed the significance of the date of insolvency in relation to the "safe harbour" provisions, which provide protection from liability for directors if the company becomes insolvent within a specified period after incurring a debt.

In determining the outcome, the court concluded that Shin did not have reasonable grounds to suspect insolvency at the relevant time. The court found that the date of insolvency did not trigger the "safe harbour" protections, as the company was not insolvent at the time Shin incurred the debts in question. Consequently, the court held that Shin was liable for breaching the statutory duty to prevent insolvent trading under section 588G of the Corporations Act. The court ordered Shin to compensate the liquidator for the losses incurred by the company.

The final orders of the court included a declaration that Shin was liable for the breach of duty and an order for Shin to pay damages to the liquidator for the losses suffered by the company. This decision underscores the importance for directors to be vigilant about their company's financial health and to take appropriate action when there are signs of potential insolvency.