On 24 November 2009, ASIC announced the release of Consultation Paper 124 Directors’ duty to prevent insolvent trading: Guide for directors (CP124). CP124 and the guidelines, are ASIC’s way of emphasizing the need for directors, particularly those in small-to-medium enterprises in financial difficulty, to fully understand this duty.

CP 124 sets out the relevant legal background and the key principles that ASIC considers directors need to take into account in performing their duty to prevent insolvent trading.

Those principles are that a director:

• must keep him or herself informed about the financial affairs of the company and regularly assess the company’s solvency;
• immediately on identifying concerns about the company’s viability, should take positive steps to confirm the company’s financial position and realistically assess the options available to deal with the company’s financial difficulties;
• should obtain appropriate advice from a suitably qualified person; and
• should consider and act appropriately on the advice received in a timely manner                

By releasing this consultation paper, ASIC is not only looking for ways to ensure directors are aware of their duties, but it is looking to understand the bigger picture. ASIC is hoping to obtain information on the use of external professionals and advisors to aid directors in meeting their duties, compliance costs with any additional obligations and the general ways a director could demonstrate compliance. This will aid ASIC in developing the assessment framework for establishing if there has been a breach of duty or not.

ASIC is seeking feedback on these proposals by 22 January 2010.

For a copy of CP124 please use this link Consultation Paper 124