A recent Queensland Supreme Court decision is a wake-up call for directors. If your company cannot pay its debts as they fall due, you could be personally liable — even if you expect things to improve.
The Case: Star Recruitment v Smith [2025] QSC 334
In December 2025, the Supreme Court of Queensland handed down a decision that every company director should read carefully.
Star Recruitment Service Pty Ltd was a labour hire company that provided workers to GG Group (QLD) Pty Ltd, which operated a strawberry farm near the Glasshouse Mountains. When GG Group was placed into liquidation in December 2021, it owed Star $1.63 million in outstanding invoices.
Star brought insolvent trading proceedings directly against GG Group’s sole director, Mr Smith, under sections 588G and 588M(3) of the Corporations Act 2001 (Cth).
The Court found the director liable for insolvent trading and awarded $1,108,441.71 in damages, plus $321,422.28 in pre-judgment interest.
What Is Insolvent Trading?
Under section 588G of the Corporations Act, a director has a duty to prevent a company from incurring debts when the company is insolvent or would become insolvent by incurring that debt.
A company is insolvent if it cannot pay all its debts as and when they become due and payable (section 95A). If a director breaches this duty, they can be held personally liable for the debts the company incurred while trading insolvently.
Key Takeaways for Queensland Directors
1. Creditors Can Sue You Directly
Many directors assume that only a liquidator can bring insolvent trading claims. That is not the case. Under section 588M(3), if a liquidator decides not to pursue the claim, an individual creditor can bring proceedings directly against the director.
This significantly increases the risk for directors. Even if a liquidator does not act, an unpaid creditor with sufficient resources may choose to pursue you personally.
2. Seasonal Businesses Are Not Exempt
Mr Smith argued that GG Group’s losses were the product of seasonal factors — rejected strawberries and supply issues — and that the company’s performance would have improved during peak season.
The Court rejected this argument. Justice Muir observed that section 95A imposes a continuous obligation not to trade while insolvent. That obligation is not suspended merely because a business expects stronger performance in certain parts of the year.
This applies equally to any business with seasonal fluctuations — construction companies with project-based revenue, retail businesses with peak trading periods, and agricultural operations.
3. External Market Conditions Are Not a Defence
The director pointed to commercial factors external to the company — supply chain issues, rejected produce, and market conditions. The Court found these were not a sufficient answer to the claim.
The losses flowed directly from GG Group incurring debts it was unable to discharge. Hoping things will improve is not a strategy that protects you from personal liability.
4. The COVID-19 Safe Harbour Defence Has Limits
Part of the debt was incurred during the COVID-19 temporary safe harbour period under section 588GAAA of the Corporations Act. The Court upheld that defence for the portion of debts incurred during that period, reducing the total claim.
However, the Court confirmed that the temporary safe harbour does not require an administrator or liquidator to have been appointed during the relevant period. This is an important clarification — the defence is about when the debt was incurred, not what happened afterwards.
Note that the temporary COVID-19 safe harbour provisions have now expired. The ongoing safe harbour defence under section 588GA still applies, but it requires directors to take active steps — specifically, developing a course of action reasonably likely to lead to a better outcome than immediate administration or liquidation.
What Should Directors Do?
If your company is experiencing financial difficulty, the time to act is now — not when a creditor serves a statutory demand or a winding up application.
- Monitor cash flow continuously. Know your company’s financial position at all times. If debts are not being paid on time, investigate immediately.
- Get professional advice early. Engaging an insolvency lawyer or accountant at the first sign of trouble can help you access the safe harbour defence and avoid personal liability.
- Document everything. If you are relying on a safe harbour defence, you must be able to demonstrate that you were developing a genuine restructuring plan. Keep detailed records.
- Do not assume things will improve. The Court in Star Recruitment v Smith made clear that optimism about future trading conditions is not a defence to insolvent trading.
- Consider voluntary administration. If the company cannot be saved, placing it into voluntary administration may be the best way to protect yourself and maximise the return to creditors.
How Boss Lawyers Can Help
At Boss Lawyers, our insolvency lawyers in Brisbane advise directors and business owners on their obligations under the Corporations Act, including:
- Assessing whether your company may be trading while insolvent
- Advising on the safe harbour defence and what steps you need to take
- Defending insolvent trading claims brought by creditors or liquidators
- Advising on restructuring options, voluntary administration, and liquidation
- Responding to statutory demands and winding up applications
If you are a director concerned about your company’s financial position, contact our team on 1300 267 711 or visit bosslawyers.com.au for a confidential discussion.
Disclaimer: This article provides general information only and does not constitute legal advice. You should obtain specific legal advice relevant to your circumstances before taking any action.
For strategic advice on director duties, personal liability, and shareholder disputes, speak with our experienced director dispute lawyers Brisbane. Call Boss Lawyers on 1300 267 711 or complete our online enquiry form today.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances. For expert advice, contact Boss Lawyers on 1300 267 711.
