Part AThe directors' duty to prevent insolvent trading Insolvency can be defined as the situation where a debtor does not have the capacity to pay the debts he or she owes. This definition can also include situations in which companies have numerous liabilities, most of which are greater than the assets they have (Adams 2002, 70). The type of insolvency that involves cash flow complications often incorporates the inability of businesses to pay their debts as they fall due. The other type of insolvency that affects the balance sheet incorporates net assets that reflect negative figures, therefore representing a scenario in which liabilities are greater than assets. It is worth remembering that insolvency is not synonymous with bankruptcy. This is because bankruptcy is a form of insolvency that can only be enforced by the courts and requires that legal precepts be established with the intent of resolving the insolvency problem. Company directors have a duty to prevent insolvent transactions, due to the fact that they can be held liable whenever losses occur and are proven to have occurred as a direct consequence of wrongful trading acts. Section 588G of the Australian Legal Code places legal responsibility on all company directors who allow the companies they chair to incur debts when they suspect or recognize that their business activities do not have the capacity to pay their debts partially or totally (Adams 2002, 98). First and foremost, it is important for all business leaders to avoid complacency and an indifferent attitude. This is because the insolvency training trap will not be avoided if directors do not take the initiative and implement measures to prevent… half of paper… 2006, Concise Companies Act. Annandale, NSW, Federation Press.CCH Publishers. 2008, Guide to Australian Master Accountants 2008/09. Sydney, CCH Australia.Du Plessis, J.J., McConvill, J., & Bagaric, M. 2005, Principles of contemporary corporate governance. Cambridge [England], Cambridge University Press.Gibson, G. 2003, Law for Directors. Leichhardt, NSW, Federation Press.Honds, J. 2007, Directors' duties in the context of insolvency. Munich, GRIN VerlagGmbH. http://nbn-resolving.de/urn:nbn:de:101:1-2010082218613.Tomasic, R., Bottomley, S., & Mcqueen, R. 2002, Company Law in Australia.Sydney, Federation Press.Loos , A. 2010, Directors' responsibility: a global review. Alphen aan den Rijn, Kluwer LawInternational/International Bar Association.Westbrook, JL 2010, A global view of corporate insolvency systems. Washington, DC, World Bank.