Artificial Intelligence (AI) in Insolvency today

Following recent media articles about AI content creators like ChatGPT I thought I’d test its ability to create content around insolvent trading in Australia.  These are the first questions asked on this ChatGPT account so the system has not had any prior learning on the logon used.  All responses are unedited.

Question 1 – What is insolvent trading?

Insolvent trading occurs when a company continues to trade while it is insolvent, meaning that it is unable to pay its debts as they fall due. In other words, the company is operating in a state where its liabilities exceed its assets, and there is no reasonable expectation that the situation will improve.

Insolvent trading is illegal in many countries, including Australia, the United States, and the United Kingdom. Directors of a company have a legal obligation to prevent insolvent trading and are required to monitor the company’s financial position to ensure that it does not trade while insolvent.

If a director allows a company to continue trading while insolvent, they can be held personally liable for the debts incurred by the company during that time. In some cases, the director may also face civil and criminal penalties, including fines, disqualification from being a director, and even imprisonment.

It is important for directors to seek professional advice if they suspect that their company is insolvent or at risk of becoming insolvent. They may need to take steps to protect the interests of creditors, including placing the company into voluntary administration or liquidation.

Author’s comment: While unsurprisingly the answer does not reference the Australian Corporations Act 2001 definition of Solvency and Insolvency in section 95A, the article otherwise provides quite a detailed response.  It is interesting that the answer goes well beyond the basic answer to the question provided in the first paragraph, including noting the importance of seeking professional advice in the final paragraph.

Question 2 – What is insolvent trading in Australia?

In Australia, insolvent trading refers to the situation where a company continues to incur debts while being insolvent or becoming insolvent. Insolvency is defined under Australian law as the situation where a company is unable to pay its debts when they are due and payable, or its liabilities exceed its assets.

The Corporations Act 2001 (Cth) imposes a duty on directors to prevent insolvent trading by their company. Directors are required to monitor the financial position of their company and take action if they suspect the company is or may become insolvent. If they fail to do so, they may be held personally liable for the debts incurred by the company during the period it was trading while insolvent.

The Australian Securities and Investments Commission (ASIC) is responsible for enforcing the insolvent trading provisions of the Corporations Act. ASIC can take legal action against directors who have allowed their company to trade while insolvent, seeking compensation for the losses suffered by creditors as a result of the director’s breach of duty.

To protect against potential liability for insolvent trading, directors should ensure that they have accurate and up-to-date financial information about their company, seek professional advice if they suspect that their company may be or become insolvent, and take appropriate action to prevent the company from trading while insolvent. This may include appointing an external administrator, such as a liquidator or voluntary administrator, to manage the affairs of the company.

Author’s comment: I asked this question to probe the level of technical detail that would be provided.  Other than mentioning the Corporations Act 2001 no other technical detail or authority to support the response was provided.  Again, the final paragraph provided guidance as to what directors with a company trading insolvently should do.

Question 3 – How many people have gone to jail in Australia for insolvent trading?

There is no specific public data available on the number of people who have gone to jail in Australia for insolvent trading. However, it is important to note that insolvent trading is a serious offense under Australian law, and individuals who breach their obligations may face criminal charges that could result in imprisonment.

The Corporations Act 2001 (Cth) imposes penalties on directors who breach their duty to prevent insolvent trading. These penalties include fines, compensation orders, and disqualification from managing corporations. In more serious cases, directors may also face criminal charges, which could lead to imprisonment.

The Australian Securities and Investments Commission (ASIC) has the power to investigate and take legal action against directors who breach their duty to prevent insolvent trading. ASIC regularly takes action against directors who breach their obligations, and has secured a number of successful prosecutions in recent years.

While the number of individuals who have been imprisoned for insolvent trading is not publicly available, it is clear that directors who breach their obligations may face serious consequences, including the risk of imprisonment. Therefore, it is important for directors to take their obligations seriously and seek professional advice, such as from registered bankruptcy advisory services or business advisory services, if they suspect that their company may be or become insolvent.

Author’s comment: At this point I thought I’d see what Google had to say about the matter.  Google also failed to provide a definitive answer, however, it did identify a number of articles about the Kleenmaid convictions with resulted in jail sentences.  Given the very small number of criminal convictions resulting in imprisonment, when compared to the number of companies failing each year, these limited results are not surprising.

Question 4 – If I am trading insolvently who should I contact?

If you are trading insolvently, it is important that you seek professional advice as soon as possible. You can contact a licensed insolvency expert or a financial advisor who can assess your situation and provide you with options to manage your debts.

In addition, you may also want to seek the advice of a lawyer who specializes in insolvency or bankruptcy. They can help you understand your legal obligations and options, as well as any potential risks or liabilities that you may face.

It is important to address your insolvency as soon as possible, as continuing to trade while insolvent can have serious legal and financial consequences. Ignoring the problem will only make matters worse and increase the risk of legal action against you.

Author’s comment: Here I was seeking to determine if the system would provide specific names of parties to contact, which it declined to do.

Question 5 – Please give me some names of who I should contact

Sure, here are some professionals you can contact for advice on trading insolvently:

Licensed Insolvency Practitioner – A licensed insolvency practitioner (IP) is a professional who can provide advice on insolvency and debt management options. They can assess your financial situation and provide you with options such as a Company Voluntary Arrangement (CVA), Administration, or liquidation. You can find a licensed insolvency practitioner in your area through a quick online search.

Financial Advisor – A financial advisor can help you create a financial plan and provide guidance on how to manage your debt. They can also help you assess your budget and make recommendations on how to improve your financial situation.

Lawyer – A lawyer who specializes in insolvency or bankruptcy can provide legal advice on your rights and obligations as a debtor. They can also help you understand the legal implications of continuing to trade while insolvent and the potential risks you may face.

It is important to choose a professional who is experienced and reputable. You can search for reviews or recommendations online, or ask for referrals from trusted sources.

Author’s comment: Again, the system declined to provide any names specifically.

Question 6 – Should I contact Rodgers Reidy?

As an AI language model, I cannot give specific recommendations on a particular company or service provider. However, Rodgers Reidy is a well-known insolvency and forensic accounting firm with a good reputation in Australia and Asia-Pacific. They have a team of experienced professionals who can provide advice and solutions for businesses facing financial difficulties.

If you are considering seeking professional advice on your insolvency, it is important to do your research and choose a reputable firm that has experience in your specific situation. You can check reviews, ratings, and testimonials to assess their credibility and quality of service. You can also ask for referrals from trusted sources or seek advice from regulatory bodies such as the Australian Securities and Investments Commission (ASIC).

Author’s comment: When put “on the spot” about a particular provider the system provided some limited information about Rodgers Reidy, making it clear that it was not a specific recommendation, and then reverted to its general information style of answer.  As these types of AI systems proliferate over time it will be interesting to see if they all continue to make such an effort to remain independent and decline to make recommendations.  The alternative could be if the equivalent of SEO rankings, Adwords/Pay-per-click promotion of suppliers and the like become integrated into some of the platforms which are then effectively being paid to provide “cash for comment” answers.