Tory v Megna and Ors; Marshall v Megna and Ors

The High Court of Australia heard appeals in two related matters, *Tory v Megna* and *Marshall v Megna*, concerning the interpretation and application of the *Corporations Act 2001* (Cth) in the context of insolvent trading claims. The central dispute involved allegations that directors of a company had engaged in insolvent trading, leading to claims against them by liquidators seeking to recover debts owed by the company.

The primary legal issue before the High Court was whether the defence of "safe harbour" under section 588G(2) of the *Corporations Act* was available to the directors. Specifically, the Court had to determine whether the directors had taken reasonable steps to prevent the company from incurring debts while insolvent, and whether they had a reasonable grounds to suspect that the company was insolvent or would become insolvent. This involved an examination of the directors' knowledge, actions, and the information available to them at the relevant times.

The High Court's reasoning focused on the objective standard of what a reasonable director would have done in the circumstances. The Court emphasised that the defence requires more than mere suspicion; directors must have reasonable grounds for their belief. It was held that the directors' reliance on incomplete or optimistic financial advice, without independent verification or a thorough understanding of the company's true financial position, was insufficient to establish the defence. The Court reiterated that directors have a positive duty to monitor the company's financial health and to take proactive steps to avoid insolvent trading, rather than passively relying on others or assuming the best.

The appeals were dismissed, with the High Court upholding the findings of the lower courts that the directors had failed to establish the safe harbour defence. Consequently, the directors were found liable for the debts incurred by the company while it was insolvent.