## (a) Controlling Act

The controlling legislation is the **Corporations Act 2001 (Cth)**.

## (b) Directors’ duties

- **Section 180(1)—care and diligence:** A director must exercise the care and diligence that a reasonable person would exercise in the same position. Continuing to incur credit after persistent non-payment and a warning of insolvency is likely a breach.

- **Section 181(1)(a) and (b)—good faith, best interests and proper purpose:** A director must act in good faith in the company’s best interests and for a proper purpose. Diverting a profitable company opportunity to the director’s own company is contrary to those obligations unless properly authorised and in the company’s interests.

- **Section 182(1)—misuse of position:** A director must not improperly use their position to gain an advantage for themselves or another person, or to cause detriment to the company. Diverting the contract to the director’s separate company directly engages this provision.

- **Section 183(1)—misuse of information:** A director must not improperly use information obtained through the directorship to gain an advantage or cause detriment. This is engaged insofar as the diversion used the company’s customer, contract or other confidential information.

- **Section 184—criminal liability:** Dishonest misuse of position or information can constitute a criminal offence. The facts may support this, but dishonesty must be proved; a civil breach alone does not automatically establish the offence.

## (c) Insolvent trading

The specific provision is **section 588G**, particularly the duty in **s 588G(1)** and the civil contravention in **s 588G(2)**.

A director must prevent the company incurring a debt when the company is insolvent, or would become insolvent by incurring it, where there are reasonable grounds for suspecting insolvency and the director knows, or a reasonable director would know, of those grounds. Insolvency is assessed by the cash-flow test in **s 95A**—whether the company can pay its debts as and when they fall due.

The unpaid debts, lack of realistic funding, bookkeeper’s warning and continued ordering of stock on credit strongly engage s 588G. The contravention can result in civil penalties and compensation liability under **s 588M** for loss resulting from the debts. A dishonest failure may also constitute the criminal offence in **s 588G(3)**.