(a) Controlling Act

Corporations Act 2001 (Cth). This is the single statute governing directors' duties and insolvent trading for an Australian proprietary company; ASIC administers and enforces it, and contraventions are pursued as civil penalty proceedings (and in serious cases, criminal proceedings) under that Act.

(b) Directors' duties provisions engaged

1. Section 180(1) - duty of care and diligence. A director must exercise the degree of care and diligence a reasonable person would exercise in the role, applying the "business judgment rule" defence in s180(2) where relevant. Continuing to order stock on credit after being warned by the bookkeeper that the company looks insolvent, with no realistic prospect of new funding, is conduct a reasonably diligent director would not engage in - it falls outside any protection of the business judgment rule because it is not an informed, rational judgment but a failure to respond to a known warning sign.

2. Section 181(1) - duty to act in good faith in the best interests of the company and for a proper purpose. Diverting a profitable customer contract away from the company to a separate entity the director personally owns is a clear breach: the director is preferring a personal/related interest over the company's interest and exercising powers for an improper purpose (personal enrichment at the company's expense), particularly damaging given the company is already in financial distress and the diverted contract reduces the funds available to creditors.

3. Section 182(1) - duty not to improperly use position to gain an advantage for the director (or someone else) or cause detriment to the company. Taking the customer contract for the director's own company is an improper use of the position of director to gain a personal advantage and causes direct detriment to the company (loss of revenue/business opportunity), engaging this provision squarely (the "corporate opportunity" misuse).

4. Section 183(1) - duty not to improperly use information obtained as a director to gain an advantage or cause detriment. To the extent the director used confidential information about the customer relationship/contract (obtained only by virtue of the directorship) to facilitate the diversion, this provision is also engaged alongside s182.

(Sections 180-183 are also civil penalty provisions under s1317E, exposing the director to pecuniary penalties, disqualification under s206C, and compensation orders under s1317H; s184 creates parallel criminal offences where the contraventions in ss181-183 are committed dishonestly or recklessly, which the deliberate diversion of the contract may satisfy.)

(c) Insolvent trading provision engaged

Section 588G of the Corporations Act 2001 (Cth) - the director's duty to prevent insolvent trading. The key concept: a director contravenes s588G where (i) they were a director when the company incurred a debt, (ii) the company was insolvent at that time or became insolvent by incurring that debt (insolvency meaning unable to pay all debts as and when they fall due, per s95A), (iii) there were reasonable grounds for suspecting insolvency, and (iv) the director was aware of those grounds or a reasonable person in a like position would have been so aware (s588G(1)-(2)). Here, the company has stopped paying debts as they fall due (which founds a statutory presumption of insolvency under s459C(2)(b) if a winding up application arises), has no realistic prospect of refinancing, and the director has been expressly warned by the bookkeeper - so the subjective and objective awareness limbs are both satisfied. Continuing to order stock on credit (incurring new debts) in these circumstances is the paradigm contravention. This exposes the director to a civil penalty (s1317E), a compensation claim by the liquidator personally equal to creditors' loss (s588M), and, if the failure to prevent the debt being incurred was dishonest, criminal liability under s588G(3). The safe harbour defence in s588GA (developing a course of action reasonably likely to lead to a better outcome than immediate administration/liquidation) is not engaged on these facts, since the director is shown to be trading on regardless rather than taking any credible restructuring steps.