I'm a junior auditor at my firm and one of the audits I'm working on seems to have demonstrated that the company involved is trading while insolvent. What are my obligations? Where can I find more information in the Corporations Act 2001 (Cth)?
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Answer by LegalEagle™ staff, Northcote 3070 VIC
- The Corporations Act 2001 (Cth) states that you must report to the Australian Securities and Investments Commission (ASIC) if you have reasonable grounds to suspect that a company is in contravention of the law. You can find this obligation under section 311.
- Even if the contravention is minor you may still be required to report it to ASIC. This is especially the case if you do not trust the company to deal with the problem adequately once you bring it to the attention of the directors. You can find more information in the Regulatory Guide 34 'Auditor's obligations: Reporting to ASIC'. This will provide you with multiple examples of the kinds of breaches considered to be 'significant'.
- Because of the substantial detriment that can be caused to creditors by a company continuing to trade while insolvent it is likely that this is a 'significant' contravention of the Corporations Act 2001 (Cth) and therefore one that you should report to ASIC.
- The first step would be to discuss this with any more experienced members of your firm and then discuss the issues with the company directors.
- If you are unsure whether the company is or is not in fact insolvent then you should first make sure that you have reasonable grounds for suspecting that they are trading while insolvent. A lawyer or accountant may be able to assist you in assuring yourself that you are reporting the issue according to law.