Shao v Crown Global Capital Pty Ltd (in prov liq) ACN 604 292 140 & Anor

The High Court of Australia considered an appeal concerning the interpretation of section 588G of the *Corporations Act 2001* (Cth) (the Act). The appellant, Mr Shao, was a director of Crown Global Capital Pty Ltd (in provisional liquidation) (the Company). The respondent, the provisional liquidator of the Company, sought to recover alleged insolvent trading by the Company from Mr Shao. The dispute centred on whether Mr Shao had breached his duty to prevent the Company from incurring debts while insolvent, as stipulated by section 588G of the Act.

The primary legal issue before the High Court was whether the provisional liquidator had established the necessary elements for a claim of insolvent trading against Mr Shao under section 588G of the Act. Specifically, the Court had to determine if the Company was insolvent at the relevant times, if debts were incurred during that period of insolvency, and if Mr Shao had reasonable grounds to suspect that the Company was insolvent or would become insolvent by incurring those debts. The Court also considered the scope and application of the defences available to directors under section 588G(2) of the Act.

The High Court analysed the evidence presented regarding the Company's financial position and Mr Shao's knowledge. The Court affirmed that the onus is on the plaintiff (the liquidator) to prove the elements of insolvent trading. It reiterated that "reasonable grounds to suspect" involves an objective test, requiring the director to have knowledge of facts that would lead a reasonable director in their position to entertain a suspicion of insolvency. The Court found that the evidence did not establish that Mr Shao had such grounds to suspect insolvency at the times the debts were incurred, and therefore, the claim under section 588G failed.

The High Court allowed the appeal, setting aside the orders of the lower courts. The appeal brought by Mr Shao was successful, and the proceedings brought by the provisional liquidator against him were dismissed.