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Mansfield v Townend – A Liquidator’s Unsuccessful Insolvent Trading Claim

Saturday, July 07, 2018

 

In Mansfield v Townend, a liquidator unsuccessfully claimed against a club’s director for insolvent trading. The defendant, Ms Townend, worked in a voluntary capacity as the ‘social director’ of the Camperdown Bowling & Recreation Club Ltd. Proceedings began after Ms Townend was involved in incurring debts of approximately $190,000 when the club was insolvent.

 

 

The court had to determine firstly whether Ms Townend was a director (under the Corporations Act definition) and secondly whether or not she knew, or ought to have known, that the club was insolvent before incurring the debts. Ms Townend did not consider herself to be a director, and was largely uninvolved in the club’s financial decisions. Importantly, she did not attend the meeting where the club’s solvency issues were discussed prior to debts being incurred.

 

 

The court held that, despite Townend’s belief that she was not a director, and her limited involvement in financial meetings and decisions, she was nevertheless a director of the club. However, the court did take into account her limited role in financial matters and concluded that Townend was unaware of the club’s insolvency. The court found that a reasonable person in her position would not have been aware of the insolvency. She was therefore not liable to unsecured creditors for insolvent trading.

 

 

This decision demonstrates potential difficulty for liquidators in overcoming the onus of proof in establishing a director knew or ought to have known about a company’s insolvency at the time of incurring debts. However, given the unusual circumstances of the case in that the director was largely uninvolved in financial activities, the decision may not be broadly applicable to other insolvent trading claims.

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