Insolvent Trading is a real issue for directors of companies.  When a person becomes a director they have fiduciary duties to the company and this is not usually explained to the director who just follows an advisor's prompt to create a company for the business.

If that company trades whilst it is insolvent, the director can face civil penalties brought by liquidators and even creditors are able to pursue a director for insolvent trading.

If the level of insolvent trading is extreme a director of a company which has been trading whilst insolvent can face criminal charges as well as any pecuniary penalties by payment of the whole amount of the debt of the creditors.    

In order to determine if your company is insolvent, the most basic definition of insolvent is as per the Corporations Act.

In its own special wording, Section 95A defines insolvent as follows:

   (1) A person is solvent if and only if, the person is able to pay all the person's debts, as and when they become due and payable.

 (2) A person who is not solvent is insolvent.

 Note:  For purposes of the Corporations Act a company is a legal person.