In a (strawberry) jam: Directors’ personal liability for insolvent trading

In December 2025, the Supreme Court of Queensland delivered a judgement which probably hasn’t received the attention it deserves. In Star Recruitment Service Pty Ltd v Smith [2025] QSC 334 the court considered the proper construction of the coronavirus-era safe harbour defence in s 588GAAA of the Corporations Act 2001 (Cth) (Act). The 2020 amendments to the Act were part of the Australian Federal Government's broader legislative response to the COVID-19 pandemic, with the primary objective of sustaining businesses and stabilising the economy during that tumultuous period. The decision upholds (in part) the protections afforded to directors under those amendments. 

Background

Star Recruitment Service Pty Ltd is a labour hire company. Star provided workers to GG Group (QLD) Pty Ltd (GG Group), which operated a strawberry farm near the Glasshouse Mountains. GG Group owed Star $1.63 million in outstanding invoices at the time they were placed in liquidation in December 2021. Star commenced proceedings against the director under ss 588G and 588M(3) of the Act. Section 588M(3) allows a creditor of a company in liquidation, in circumstances where the liquidator decides not to take the action, to bring insolvent trading proceedings themselves.

The Plaintiff argued that at the time these invoices were incurred, GG Group had been trading insolvently in contravention of s 588G of the Act. The Plaintiff claimed damages in the amount of the outstanding invoices, under s 588M(3) of the Act. 

Mr Smith, the defendant, was the sole director of GG Group. 

Ultimately, as part of the debt had occurred during the COVID-19 safe harbour period, it was subsequently excluded from the claim for damages. However, the Court found the director liable for insolvent trading and awarded the Plaintiff $1,108,441.71 in damages, plus pre-judgment interest of $321,422.28.

Key Takeaways 

• Insolvent trading claims can be successfully brought by creditors as well as liquidators.
• The proper construction of s 588GAAA(1)(c) does not impose requirements that an administrator or liquidator be appointed during the safe harbour period. According to Muir J, the alternative would be completely at odds with the purpose of the provision being enacted in the first place.
• In relation to ‘seasonal’ businesses, her Honour observed that:

[185] The Company was placed into liquidation on 1 December 2021, so there are no full year financial statements for the financial year 2022. The July to November 2021 internal accounts are therefore the only available data covering the months immediately preceding the liquidation. I accept the plaintiff’s submission that the Company’s seasonal trading profile does not excuse its failure to pay debts as and when they fell due during the relevant period. Section 95A, when read in conjunction with s 588G, 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.

• The director had argued that the losses were the product of rejected agricultural produce (‘knockout’ strawberries) and supply issues. However, the Court did not accept this position. It found that the losses suffered flowed directly from GG Group incurring debts it was unable to discharge and that commercial factors external to the company's financial position were not a sufficient answer to the claim. This reinforces that simply pointing to market conditions or supplier conduct will not protect a director from personal liability where the evidence of insolvency is clear.

The judgment reflects the importance of directors being proactive in addressing the risks of insolvency. Just like strawberry farming, when trading conditions sour, directors cannot simply hope for a better season. The obligation to act is continuous, and the consequences of inaction are anything but sweet.