Directors of companies that are in financial trouble are always wary of Section 588G of the Corporations Act which provides that directors are personally liable if their company incurs a debt when it was insolvent and there are reasonable grounds to suspect that the company was insolvent at the time.

So with respect to a Lease where payments are normally due on a monthly basis if a company is insolvent and then must make another payment under the Lease are they trading insolvent?

Fortunately for any directors out there the answer to this is no. When leasing a property, the debt is incurred upon entering into the lease. Section 588G is applicable when a debt is incurred rather than when it is payable, meaning that even after incurring a debt a company becomes insolvent and lease. However if the Lease expires and the tenant remains on a month to month basis a new debt is incurred each month so directors must be careful in this situation.

Based on the Sunshine Coast Miller Sockhill Lawyers can assist you with any legal matters of a commercial nature, do not hesitate to contact a solicitor right here in our Sunshine Coast office.