# (a) Controlling Act

**Corporations Act 2001 (Cth)**.

# (b) Directors’ duties engaged

- **Section 180(1) — care and diligence:** A director must exercise their powers and discharge their duties with the care and diligence of a reasonable person in the same position and company circumstances. Continuing to incur supplier credit after being warned of apparent insolvency 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 company contract to another company owned by the director prioritises the director’s interests over those of the company.

- **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 cause detriment to the company. Diverting the contract to the director-owned company squarely engages this provision.

- **Section 183(1) — improper use of information:** This is also engaged if knowledge of the profitable customer or contract opportunity was obtained through the directorship and used for the director’s advantage.

If the diversion was intentionally dishonest or reckless, **section 184(2)–(3)** may additionally create criminal liability.

# (c) Insolvent trading liability

**Section 588G — duty to prevent insolvent trading.**

Under **section 95A**, a company is insolvent when it cannot pay all its debts as and when they become due and payable. Section 588G requires a director to prevent the company from incurring a debt while it is insolvent, or when incurring the debt would make it insolvent, where there are reasonable grounds for suspecting insolvency.

Each order of stock on credit may constitute a newly incurred debt. Given the unpaid debts, absence of realistic funding and bookkeeper’s warning, the facts prima facie establish:

1. insolvency or reasonable grounds to suspect it;
2. awareness by the director, or awareness that a reasonable person would have had; and
3. a failure to prevent the company incurring further debts.

This engages **civil liability under section 588G(2)**, with compensation potentially recoverable under **sections 588J and 588M**. If the failure was dishonest, **section 588G(3)** may also create criminal liability. No section 588H defence or section 588GA safe harbour is apparent on the stated facts.