Win for the Good Guys

The Corporations Act (S 588FDA) allows a liquidator to ask the Court to set aside “Unreasonable director- related transactions”. The object of that section is to help liquidators recover funds or property lost in transactions involving directors and which fail the “reasonable” test.

In 2013 The NSW Supreme Court said that the section had no application when then party receiving the benefit of the transaction was a company, and that was the case even if the companies had common directors and the director of the insolvent company was a shareholder in the second company.(See Great Wall Resources Pty Ltd (in liq))

But the recent decision in “Great Wall” has now been trumped by a decision of the Victorian Court of Appeal in “Vasudevan and Others”. In simple terms the Victorian Supreme Court found that where an insolvent company entered in to an unreasonable transaction with another company, the shareholders of the second company must have received “a benefit”. As the shareholder receiving the benefit was a director of the insolvent company the Court was able to make orders under the section.

This common sense decision will be welcome by liquidators and will apply to transactions for up to four years before the start of the liquidation.