## (a) Controlling Act

**Corporations Act 2001 (Cth).**

## (b) Directors’ duties engaged

- **Section 180(1) — care and diligence:** a director must exercise the care and diligence of a reasonable person in the company’s circumstances. Continuing to incur credit after clear insolvency warnings may breach this duty.
- **Section 181(1) — 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 corporate opportunity to the director’s own company is inconsistent with that duty. In insolvency or near-insolvency, creditor interests become particularly relevant.
- **Section 182(1) — improper use 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 customer contract to the director’s separate company directly engages this provision.
- **Section 183(1) — improper use of information:** this is also engaged if the director used information obtained through the directorship to divert the contract.

These are civil-penalty provisions. **Section 184** may additionally impose criminal liability if the relevant lack of good faith or misuse of position or information is intentionally dishonest or reckless, but dishonesty is not established merely by the stated facts.

## (c) Insolvent trading

**Section 588G — director’s duty to prevent insolvent trading.** It applies where:

1. the person is a director when the company incurs a debt;
2. the company is then insolvent, or becomes insolvent by incurring that debt;
3. there are reasonable grounds for suspecting insolvency; and
4. the director is aware of those grounds, or a reasonable person in the director’s position would be aware of them.

Ordering stock on credit incurs further debts. The failure to pay debts as they fall due, absence of realistic funding and bookkeeper’s warning strongly indicate reasonable grounds for suspecting insolvency. Contravention can produce civil-penalty consequences and compensation liability, including under **s 588M**; dishonest failure to prevent the debts may constitute the criminal offence under **s 588G(3)**.