Section 588GAB — Corporations Act 2001: Officer’s duty to prevent creditor-defeating disposition

(1) An officer of a company must not engage in conduct that results in the company making a creditor-defeating disposition of property of the company, if: (a) the company is insolvent; or (b) the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition; or (c) less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2) of the company occurs as a direct or indirect result of the disposition; or (d) less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition. Note 1: Failure to comply with this subsection is an offence: see subsection 1311(1). Note 2: Recklessness is the fault element for the result of the company making the creditor-defeating disposition and for paragraphs (1)(a), (b), (c) and (d): see section 5.6 of the Criminal Code. (2) An officer of a company must not engage in conduct that results in the company making a disposition of property of the company, if: (a) one or more of the following applies: (i) the company is insolvent; (ii) the company becomes insolvent because of the disposition or a number of dispositions made at the time of the disposition; (iii) less than 12 months after the disposition, the start of an external administration (as defined in Schedule 2) of the company occurs as a direct or indirect result of the disposition; (iv) less than 12 months after the disposition, the company ceases to carry on business altogether as a direct or indirect result of the disposition; and (b) the officer knows, or a reasonable person in the position of the officer would know, that the disposition is a creditor-defeating disposition. Note 1: This subsection is a civil penalty provision (see section 1317E). Note 2: Section 588E provides for presumptions about when a company is insolvent and about matters relevant to whether a disposition is a creditor-defeating disposition. Exceptions (3) Subsections (1) and (2) do not apply if the disposition was made: (a) under a compromise or arrangement approved by a Court under section 411; or (b) under a deed of company arrangement executed by the company; or (ba) under a restructuring plan made by the company; or (c) by the company’s liquidator; or (d) by a provisional liquidator of the company. Note: Section 588GA also provides for subsections (1) and (2) of this section not to apply if the disposition was connected with a course of action likely to lead to a better outcome for the company.