Mr. Smith is a retired director of XYZ Co Ltd, he was not appointed a director for the current year (2014), but still attends to many of the business matters within the company, and also attends the directors meetings to advise and mentor the new directors. Mr Smith receives a consultancy fee for his work, and the new directors generally follow the advice of Mr Smith in the way in which they run the company.
The company was recently audited and the auditors and directors with the recommendation of Brian the companies CFO have signed off the 2015 financial accounts as correct and true.
At the end of 2015 XYZ company is unable to pay a number of its immediate debts, so Mr Smith, on behalf of the company, negotiates with a number of creditors for an extension of time to pay back what the company owes. However, early in 2016 the company resolves to place itself into voluntary administration. The external administrators discover that the company had sold some of its quite valuable property to Mr Smith for a price below market value before his retirement as a director.
Required: Advise the directors whether they are liable for breaching the insolvent trading provisions of the Corporations Act 2001. Also advise whether they have any defences available to them if they have in fact breach the insolvent trading provisions.
Advise the directors and other officers whether they have any liability for signing off on the 2015 financial accounts.
Advise what is the liability of Mr Smith for his actions leading up to the voluntary administration of XYZ Co Ltd? Explain what law might apply to Mr Smith and whether he has breached any duties owed to the company committed any offences.