LawAnswers.com.au - Australia's #1 Legal Community

LawAnswers.com.au is a community of 10,000+ Australians, just like you, helping each other.
Ask a question, respond to a question and better understand the law today!
Join us, it only takes a minute:

SA Is Father Liable for Company Debt?

Discussion in 'Debt and Bankruptcy Law Forum' started by Splitpants, 13 October 2016.

  1. Splitpants

    Splitpants Member

    Joined:
    13 October 2016
    Messages:
    2
    Likes Received:
    0
    Hi

    My father was a director of a company which he sold in 2006. This month that company went into liquidation and creditors of that company are sending him debt collection letters as his name is still on the trade accounts that were set up prior to its sale.

    My question is, as my father signed the credit applications, is he still liable for the debt the company has raised, even though he is no longer a director or involved in the company in any way?

    They rang the company that the money is owed to, and they said that because he signed the original credit agreement that he is liable for the debt, even though he is not involved in the company, and they are taking legal action against him.

    Any help would be appreciated.
     
  2. Sophea

    Sophea Well-Known Member

    Joined:
    16 April 2014
    Messages:
    2,300
    Likes Received:
    334
    Hi Splitpants,

    There are a few legal issues here:

    (1) A director will only be liable for a company's debts when he or she has breached their obligtations as a director such as allowing the company to trade while insolvent. This is because a corporation is treated as a seperate legal entity which is solely responsible for its own debts. However this corporate veil may be pierced to deny shareholders the protection that limited liability normally provides in some circumstances.

    (2) the only other way a company would be able to pursue a director is if he contracted with them in his own name, or went guarantor for the company.

    (3) By sale of the company I assume you mean sale of the business? When the business was sold, (if he had a proper sale of business agreement drafted by a lawyer) the agreement with the buyer should have assigned all debts to the purchaser so the old owner of the business (whether a company or an individual) would no longer be liable.
     
  3. Splitpants

    Splitpants Member

    Joined:
    13 October 2016
    Messages:
    2
    Likes Received:
    0

    Thank you.

    Yes, I believe when he sold the business, he had a sale of business drafted by a lawyer, so hopefully they will have included the popper clauses.
     

Share This Page

Loading...