Reference no: EM133293190

Gordon is a non-executive director of Central Locking Ltd, a company that manufactures a Locking system for industrial properties. The other directors are Billie, the managing director and Jhang, the associate director. In a board meeting on 23 November 2021, Billie and Jhang, the two directors of Central Locking Ltd have passed a resolution that the company should borrow $1 million from the bank to buy a new machine that can produce a new locking system with a more sophisticated design.

Gordon was on leave between 20 and 27 November 2021 to attend his daughter's graduation ceremony. He thus missed the board meeting. The company started producing the new locking system in January 2022. The distribution of the new product completed in April 2022.

However, the company's July 2022 report showed that the company was in serious financial crisis. The company was therefore unable to pay the first loan repayment instalment due to the bank in July 2022. This was mainly because the new locking system failed to make the expected profit for the company. In August 2022, a liquidator is appointed by the bank. The liquidator's first impression is that the directors were trading insolvent.

Discuss whether Gordon and the other directors have breached their duty to prevent insolvent trading under both the Corporations Act 2001 (Cth) and case laws? Also examine what defences can be used by the directors. Subject to your opinion on the breach of duty to prevent insolvent trading, discuss the possible remedies available to the company that can be sought by the liquidator.