Breaching books and records laws as easy as A.B.C

Breaching books and records laws may have just got a whole lot easier to prove, according to a recent Federal Court case (Re Adelaide Brighton Cement Limited (No 4) [2019] FCA 1846).

Insolvency people regularly talk about directors of insolvent entities not properly keeping records or those records being wrong.

Although it is a civil penalty (or even criminal) offence under the Corporations Act (eg s286), rarely (in my experience) are these allegations sustained or prosecuted.

But if sustained, they can lead to a presumption of insolvency and a relatively easy insolvent trading claim (etc).

According to His Honour, s286 of the Corps Act does not require a “severe absence of records” to create a breach. Instead a material misstatement of a liability or asset is enough [see paras 571, 968-971].

The misstatement here was a $12m liability only recorded in the books at $2m. 

Materialism [para 20] may only need to be anything more “than de minimis” (ie not small). So is $1, $1k, $5k … 1%, 5%, etc enough?? [… I am struggling with this, it seems impractical]

Therefore the Court favoured the opinion of an independent experienced forensic accountant over an independent experienced Liquidator, in relation to an insolvency matter.

The case is mammoth and deals with so many other issues that are well worth a read, but this is one that stands out to me.

auslaw svvoidables directors

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