Incurring of Certain Debts

– section 592 of the Corporations Act 2001

Incurring of Certain Debts

This offence applies to companies that have incurred a debt before the 23rd of June 1993. At the time the debt was incurred, it must have been obvious that the company could not pay the debt. Or as a result of the debt, could not pay other debts.

Examples of Incurring of Certain Debts
  • On 03 January 1992, directors of a company borrow $1 million from a bank, knowing they will not be able to pay the amount back.
What are some of the possible defences to a charge of Incurring of Certain Debts?
  • The debt was incurred without your express or implied authority or consent.
  • At the time when the debt was incurred, you did not have a reason to expect the company would not be able to pay all its debts.

There are other possible defences, depending on the circumstances surrounding the alleged offending. Each matter is unique and requires an individual approach and strategy.

Questions in cases like this
  • When was the debt incurred?
  • Did you know about the debt?
  • Did you authorise the debt?
  • Did you have any reason to think the company could not pay the debt or other debts?

Court that deals with this charge

This charge would likely be heard in the Magistrates’ Court.

“Was the debt incurred before 23 June 1993?”
What is the legal definition of Incurring of Certain Debts?

The Prosecution must show that the company incurred the debt, that the debt was incurred before the 23rd of June 1993 and at the time of incurring the debt it was known by the directors of that company that the company could not pay existing debts.

Legislation

The section that covers this offence is section 592 of the Corporations Act 2001.1

 


[1] Corporations Act 2001 – Section 592

(1) Where:
(a) a company has incurred a debt before 23 June 1993; and
(b) immediately before the time when the debt was incurred:
(i) there were reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or
(ii) there were reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and
(c) the company was, at the time when the debt was incurred, or becomes at a later time, a company to which this section applies;
any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred contravenes this subsection and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt.
(1A) An offence based on subsection (1) is an offence of strict liability.
(2) In any proceedings against a person under subsection (1), it is a defence if it is proved:
(a) that the debt was incurred without the person’s express or implied authority or consent; or
(b) that at the time when the debt was incurred, the person did not have reasonable cause to expect:
(i) that the company would not be able to pay all its debts as and when they became due; or
(ii) that, if the company incurred that debt, it would not be able to pay all its debts as and when they became due.
(3) Proceedings may be brought under subsection (1) for the recovery of a debt whether or not the person against whom the proceedings are brought, or any other person, has been convicted of an offence under subsection (1) in respect of the incurring of that debt.
(4) In proceedings brought under subsection (1) for the recovery of a debt, the liability of a person under that subsection in respect of the debt may be established on the balance of probabilities.
(5) Where subsection (1) renders a person or persons liable to pay a debt incurred by a company, the payment by that person or either or any of those persons of the whole or any part of that debt does not render the company liable to the person concerned in respect of the amount so paid.
(6) Where:
(a) a company has done an act (including the making of a contract or the entering into of a transaction) with intent to defraud creditors of the company or of any other person or for any other fraudulent purpose; and
(b) the company was at the time when it does the act, or becomes at a later time, a company to which this section applies;
any person who was knowingly concerned in the doing of the act with that intent or for that purpose contravenes this subsection.
(6A) For the purposes of an offence based on subsection (6), absolute liability applies to paragraph (6)(b).
(7) A certificate issued by the proper officer of an Australian court stating that a person specified in the certificate:
(a) was convicted of an offence under subsection (1) in relation to a debt specified in the certificate incurred by a company so specified; or
(b) was convicted of an offence under subsection (6) in relation to a company specified in the certificate;
is, in any proceedings, prima facie evidence of the matters stated in the certificate.
(8) A document purporting to be a certificate issued under subsection (7) is, unless the contrary is established, taken to be such a certificate and to have been duly issued.