Insolvent Trading and Financial Records: What Crispino v Lightowler [2026] VSC 500 Means for Queensland Directors
A sole director has been ordered to pay $2,504,836.99 to liquidators for insolvent trading after the Supreme Court of Victoria found that failing to keep financial records, combined with a “bare denial”, was legally sufficient to establish years of presumed insolvency. Crispino & Ors v Lightowler [2026] VSC 500, decided on 5 August 2026, sends a clear message to every company director in Australia: no records means no defence.
Key Takeaways
- Under s 588E(4) of the Corporations Act 2001 (Cth), a company that fails to keep written financial records is presumed insolvent for the period covered by the missing records, and the director bears the burden of rebuttal.
- A “bare denial” of insolvency, with no supporting evidence, no financial statements, and no expert evidence, is legally insufficient to rebut the presumption. The Supreme Court of Victoria confirmed this in Crispino v Lightowler [2026] VSC 500 on 5 August 2026.
- Melbourne Container Transport Pty Ltd failed to keep records from 2016 to early 2019 and then switched accounting software without retaining data, triggering the presumption across both periods.
- Director Jodie May Lightowler was ordered to personally pay $2,504,836.99 to liquidators under s 588M for insolvent trading debts incurred between approximately 1 July 2018 and 2 November 2023.
- This decision reinforces the ATO’s current enforcement posture, and every Queensland director should review their exposure with our director disputes lawyers: unpaid superannuation guarantee charge (SGC) and BAS arrears are the most common trigger. Directors dealing with ATO debt should also understand their rights regarding creditor recovery procedures in Queensland facts for insolvent trading claims. Directors with ATO debt should treat it as a warning sign, not a deferral option.
What Happened in Crispino v Lightowler [2026] VSC 500?
Melbourne Container Transport Pty Ltd was incorporated in September 2013 with Jodie May Lightowler as its sole director and secretary. From the available records, the company was engaged in the transport sector, an industry that has seen elevated insolvency rates through 2024–26 as fuel costs, supply chain disruption, and labour costs compressed margins across the sector.
The company failed to pay superannuation guarantee charge (SGC), BAS obligations, and payroll tax over a prolonged period. By the time insolvency proceedings were underway, the company owed the ATO $1,042,446.68 in unpaid SGC and BAS alone. The Commissioner of State Revenue filed a further proof of debt for $38,068.92 in unpaid state taxes and penalties.
Following an unmet statutory demand, an application to wind up the company was filed. In late 2023, the company entered a Deed of Company Arrangement (DOCA). Ms Lightowler proposed terms under the DOCA, including a payment of $300,000 into the deed fund within seven days. She did not make that payment. The DOCA was terminated following her default, and liquidators (the Crispino parties) were appointed in 2024.
Our Brisbane insolvency lawyers regularly advise directors facing liquidator claims. The liquidators commenced proceedings against Ms Lightowler for insolvent trading under s 588G of the Corporations Act 2001 (Cth). They alleged that the company was insolvent from on or about 1 July 2018 to the administration date, the “Relevant Period”, and that during that time, the company incurred debts totalling $3,422,951.32 to various creditors.
The case turned on two issues: was the company insolvent during the Relevant Period, and if so, did the director breach her duty to prevent the company from incurring debts?
The Financial Records Failure: How Section 588E(4) Created the Presumption
This is where the case gets instructive for every company director in Australia.
The liquidators relied on s 588E(4) of the Corporations Act 2001 (Cth), which provides that if a company has failed to keep written financial records in accordance with s 286 during any part of a period, the company is presumed to have been insolvent throughout that period.
Section 286 of the Corporations Act requires a company to keep written financial records that correctly record and explain its transactions, financial position, and financial performance, and that enable true and fair financial statements to be prepared and audited. The records must be retained for seven years. Failure to comply with s 286 is itself a civil penalty offence, carrying penalties of up to $200,200 per contravention.
Melbourne Container Transport failed to keep financial records in two distinct ways:
- Pre-MYOB period (2016 to early 2019): The company did not retain written financial records at all during this period. There can be no question that this constituted a failure to keep financial records within the meaning of s 286.
- MYOB transition period: The company changed its accounting software to MYOB in early 2019. Financial records were retained from that point, but the pre-transition data was not retained or migrated. The failure to preserve pre-transition records was a further failure under s 286.
Justice Matthews found that the s 588E(4) presumption applied to both the unrecorded period and, because the missing records made it impossible to reconstruct a complete financial picture, the recorded period that followed. As the Court found:
“That presumption not having been rebutted, the Company is to be taken as having been insolvent throughout the Unrecorded Period and the Recorded Period, such that the Company is presumed insolvent from 2 November 2016 to the Administration Date.”
The “Bare Denial” Defence, and Why It Failed
Ms Lightowler denied the allegations of insolvency. But the Court found she had done nothing more than enter a bare denial in her defence, no expert evidence, no financial analysis, no particularised grounds, and no evidence addressing the presumption.
The Court was unambiguous:
“Beyond her bare denial in the Defence as to actual insolvency, the defendant has not pleaded any material facts or adduced any evidence to support her denial.”
This is not a technicality. The law is well-established that to rebut the s 588E(4) presumption, a director must adduce “cogent evidence”, typically independent expert evidence from a forensic accountant or insolvency practitioner, based on the fullest and best available evidence of the company’s financial position. This standard was established in cases such as Lewis v Doran [2004] NSWSC 608 and consistently applied since.
A director who denies insolvency without supporting evidence, particularly when their own company has failed to keep the very records that would have allowed the financial position to be assessed, cannot escape the presumption simply by asserting it is wrong.
The Court also found that even setting aside the presumption, the available MYOB records from the recorded period confirmed actual insolvency. The net loss before tax for FY2023 was $777,900.90 and for FY2024 (to the administration date) was $533,659.18. The company’s financial position had been “materially overstated” in a way that made it “likely to be in a net loss position” throughout the period.
Justice Matthews was satisfied that the company was actually insolvent from at least 2 August 2023, and presumed insolvent across the entire period due to the records failure.
What Section 588G Requires, and What the Director Must Have Known
Section 588G of the Corporations Act 2001 (Cth) imposes civil liability on a director who allows a company to incur a debt when:
- The company is insolvent at the time the debt is incurred, or becomes insolvent because of incurring the debt;
- There are reasonable grounds for suspecting the company is insolvent or would become insolvent; and
- The director is aware of the grounds for suspicion, or a reasonable person in the director’s position would be aware of them.
The standard is measured against what “a reasonable person” in the director’s position would have known. A sole director, who is also the company secretary, is expected to have close knowledge of the company’s financial affairs. The failure to maintain financial records, the accumulating ATO debt, the unpaid SGC, and the deteriorating trading position were all circumstances that a reasonable director in Ms Lightowler’s position ought to have been aware of.
The Court found that Ms Lightowler had failed to prevent the company from incurring the debts in question. It awarded the liquidators $2,504,836.99 under s 588M, the section that empowers a liquidator to recover from a director the amount of the loss or damage suffered by creditors as a result of the insolvent trading.
Why This Decision Matters for Queensland Directors
While Crispino v Lightowler is a Victorian Supreme Court decision, it applies principles of federal law, the Corporations Act 2001 (Cth), that apply uniformly across Australia, including Queensland. The decision has five direct implications for Queensland company directors:
1. Financial Records Are Not Optional
Section 286 compliance is non-negotiable. Directors who allow their companies to operate without proper written financial records are creating an insurmountable legal vulnerability for themselves. If the company subsequently fails, the s 588E(4) presumption activates automatically, and the burden of disproving it falls on the director personally.
The problem with missing records is circular: the very absence of records makes it nearly impossible to rebut the presumption, because you cannot reconstruct a financial position without data. The director who failed to keep records is then doubly exposed, first for the breach of s 286, and second for the insolvent trading liability the presumption creates.
2. Changing Accounting Software Requires Data Migration
This is a practical trap that many small business directors fall into. Switching from one accounting system to another, whether from a spreadsheet to Xero, from a legacy system to MYOB, or between cloud platforms, requires that historical data is preserved. If the transition leaves a gap, that gap can trigger s 588E(4).
It is not sufficient that the old records “still exist somewhere.” Records must be accessible, complete, and capable of enabling the preparation of true and fair financial statements. If they cannot do that, they may not meet the s 286 standard.
3. ATO Debt Is Insolvency Evidence. Not a Deferral Option
The company in this case had $1,042,446.68 in unpaid ATO obligations. SGC and BAS arrears. For many small business directors, ATO debt accumulates as a form of informal financing: “We’ll pay the BAS when cash flow improves.” This decision demonstrates why that approach is catastrophically dangerous.
Unpaid SGC and BAS obligations are among the most powerful indicators of insolvency that liquidators can point to. They are also the most likely to attract ATO enforcement action, including Director Penalty Notices (DPNs), which can personally expose directors to the company’s tax debt before any liquidation even begins.
In the current enforcement environment, the ATO issued over 84,000 DPNs in FY2025-26 and collected $2.1 billion under the DPN regime. Payday Super, which commenced 1 July 2026, added superannuation guarantee obligations to the lockdown DPN category for the first time. Directors who allow super to fall overdue now face a DPN that cannot be discharged by placing the company into voluntary administration.
4. A DOCA Failure Can Accelerate Your Personal Exposure
Ms Lightowler proposed a DOCA with a $300,000 contribution to the deed fund, and then failed to make the payment. The DOCA was terminated. This is a sequence of events that is more common than it should be.
Directors who propose a DOCA they cannot fund are not only exposing themselves to the costs of a failed DOCA, they are also losing time that could have been used for voluntary administration, safe harbour planning, or Small Business Restructuring. When the DOCA fails and liquidators are appointed, the liquidators have the same investigative and recovery powers they would have had from day one, plus any additional claims arising from the DOCA failure itself.
5. Sole Directors Are Held to the Same Standard as Multi-Director Boards
Ms Lightowler was the sole director and secretary of Melbourne Container Transport. This case confirms that the s 588G standard, what “a reasonable person in the director’s position” would have known, applies with full force to sole directors. There is no concession for the fact that a sole director is also operating the business day-to-day, managing staff, and performing operational functions. The law expects directors to monitor financial position regardless of workload.
In practice, this means that sole directors of small companies, a cohort that makes up the vast majority of Australian proprietary companies, must ensure they have access to up-to-date financial information on at least a monthly basis. This does not require a sophisticated corporate finance function. It requires a bookkeeper, an accountant, and an accounting system that produces meaningful reports.
The s 588G Defences: What Could Have Protected This Director?
The Corporations Act provides three defences to an insolvent trading claim under s 588H:
| Defence | What It Requires | Available in Lightowler? |
|---|---|---|
| s 588H(2). Reasonable grounds | Director had reasonable grounds to expect the company was solvent and would remain solvent | ❌ No, could not establish solvency without records |
| s 588H(3). Reliance on information | Director relied on information provided by another person (e.g., accountant or CFO) who gave false or misleading information | ❌ No, sole director with no CFO; no evidence of reliance |
| s 588H(4). Illness or other good reason | Director did not participate in management due to illness or other good reason, and took all reasonable steps to prevent the debt being incurred | ❌ No, was active director throughout |
| s 588GA. Safe harbour | Director was taking a course of action reasonably likely to lead to a better outcome than administration or winding up; required proper financial records and professional advice | ❌ No, no evidence of safe harbour course of action; no financial records to demonstrate one |
None of the defences were available. This is the compounding effect of the records failure: not only does it create the insolvency presumption, it systematically eliminates the defences that might otherwise be available.
Six Steps Queensland Directors Must Take Now
If you are a director of a Queensland company, particularly a sole director of a private company, this decision requires you to take the following steps immediately.
Step 1. Audit Your Financial Records Compliance
Confirm that your company is meeting its s 286 obligations. You should have written financial records covering every transaction and financial event since incorporation (or for the last seven years, whichever is shorter). If there are gaps, including gaps from accounting software transitions, address them now, before any insolvency event that might trigger s 588E(4).
Step 2. Obtain Current, Reliable Financial Information
A director cannot assess solvency without financial information. At minimum, you should have access to a current profit-and-loss statement, a balance sheet, an aged creditors list, and a 13-week cash flow forecast. If you do not have this, engage your accountant to prepare it before the end of this month.
Step 3. Treat ATO Arrears as a Warning Sign, Not a Buffer
If your company has unpaid BAS, SGC, or PAYG withholding, you are accumulating the precise evidence that liquidators use to establish insolvent trading. Set up a payment arrangement with the ATO immediately. If the arrears are significant, obtain legal advice about your Director Penalty Notice exposure before the ATO acts first.
Step 4. Document Every Financial Decision
When the company is under financial pressure, document your awareness of the financial position and the reasons you believe the company can continue to trade. This is not bureaucracy, it is the evidentiary foundation for the s 588H(2) defence and the s 588GA safe harbour. Undocumented decisions cannot support a defence.
Step 5. Understand Your DOCA Obligations Before You Propose Them
If your company enters voluntary administration, do not propose DOCA terms you cannot fund. A failed DOCA wastes time, increases costs, and leaves you with no better outcome than liquidation, while the liquidators retain full investigative powers and the debt clock keeps running. If you intend to contribute to a DOCA, ensure the funds are available and irrevocably committed before the DOCA is executed.
Step 6. Get Legal Advice Early
The safe harbour defence under s 588GA is only available if directors take it before the company is hopelessly insolvent. Directors who wait until after a statutory demand, a creditors meeting, or an ATO debt recovery action before seeking advice have often already lost the opportunity for the safe harbour defence. If you are aware that your company is under financial pressure, seek insolvency legal advice now, not when the liquidator writes to you.
How Boss Lawyers Helps Queensland Directors
Boss Lawyers regularly acts for Queensland directors facing insolvent trading claims, statutory demands, ATO enforcement, and ASIC investigations. Our insolvency team understands the evidentiary requirements for the s 588H defences and the safe harbour, and can advise on your legal position at any stage, from pre-insolvency planning to defending a liquidator’s claim.
We also act for liquidators and creditors pursuing insolvent trading claims and voidable transaction recoveries. That dual experience gives us a practical understanding of how liquidators build their cases and where director defences succeed or fail.
If you are a Queensland director concerned about your personal exposure to an insolvent trading claim, or if you have received a letter of demand from a liquidator, call Mark Harley at 1300 267 711 or visit our director disputes page or our insolvency lawyers Brisbane page for more information.
Boss Lawyers offers a fixed fee director advisory session (2 hours, structured advice on duties, DPN exposure, and options), contact us for current pricing before you start.
Frequently Asked Questions
What is the section 588E(4) presumption of insolvency?
Under s 588E(4) of the Corporations Act 2001 (Cth), if a company has failed to keep written financial records in accordance with s 286 during any period, the company is presumed to have been insolvent throughout that period. The presumption can only be rebutted by cogent evidence, usually independent expert evidence from a forensic accountant based on the fullest available financial data. A bare denial by the director, unsupported by financial evidence, is legally insufficient to rebut it.
What is insolvent trading under section 588G of the Corporations Act?
Section 588G imposes civil liability on a director who allows a company to incur a debt when the company is insolvent at the time the debt is incurred (or becomes insolvent as a result of incurring it), and there are reasonable grounds for suspecting insolvency, and the director is (or ought to be) aware of those grounds. A liquidator can recover from the director, under s 588M, the amount of loss or damage suffered by creditors as a result of the insolvent trading.
What must a director do to rebut the insolvency presumption?
To rebut the s 588E(4) presumption, a director must adduce cogent evidence of the company’s actual financial position during the period in question. Courts require the fullest and best available evidence, typically a forensic accountant’s reconstruction of the company’s financial position from all available sources (bank statements, creditor records, ATO data, third-party invoices). Simply denying insolvency without supporting evidence will not succeed. This is why maintaining accurate financial records throughout the company’s life is so critical, without records, there is no material from which to mount a rebuttal.
Can I use the safe harbour defence if my company failed to keep records?
No. The safe harbour defence under s 588GA expressly requires that the company is taking a course of action “reasonably likely to lead to a better outcome for the company.” It also requires that the company is keeping proper financial records and providing information to the restructuring adviser. A company that is not keeping financial records in accordance with s 286 cannot access the safe harbour defence.
What is the difference between a Director Penalty Notice and an insolvent trading claim?
A Director Penalty Notice (DPN) is a separate mechanism under the Taxation Administration Act 1953 (Cth) by which the ATO holds directors personally liable for a company’s unpaid PAYG withholding, SGC, and (from 1 July 2026) superannuation guarantee charge. It operates outside the insolvent trading framework entirely. An insolvent trading claim is brought by a liquidator under s 588G of the Corporations Act, and covers all debts incurred while the company was insolvent, not just tax debts. Both can arise from the same company failure, and a director may face both simultaneously. The ATO can pursue the DPN route directly (without needing to work through the liquidator), while the liquidator pursues the s 588G claim.
This is general information only and is not legal advice. The law in this area is complex and fact-specific. You should obtain professional legal advice specific to your circumstances before taking any action in relation to director liability, insolvent trading, or insolvency.
