Litig8: Insolvency: Evidence of director related transactions

May, 2016

By Jason Kalliris, Law Graduate

Each month as a part of Mills Oakley’s Litig8, we bring to you snapshots of eight key cases, legislative changes or other legal events. The summaries are not comprehensive and do not constitute legal advice. You should seek professional advice before taking any action based on the content of this email.

Part 6 of the May edition of Litig8

In Crowe-Maxwell v Frost [2016] NSWCA 46 (16 March 2016), the New South Wales Court of Appeal provided a useful summary of the elements and proof of a claim by a liquidator for the recovery of payments alleged to constitute unreasonable director-related transactions within the meaning of s 588FDA of the Corporations Act, 2001 (Cth).

The material facts of the case are as follows:

The judge at first instance dismissed the claims made by the liquidator, finding that the payments made did not provide a benefit to the directors beyond their entitlement to be paid for their services and were not uncommercial.

On appeal, the essential question was whether the monies claimed were unreasonable director-related transactions within the meaning of section 588FDA of the Corporations Act 2001 (Cth).

Relevantly, in reaching its decision, the Court was required to address issues regarding the liquidator’s onus of proving that a transaction constituted an unreasonable director related transaction and the extent to which directors bore an onus to adduce evidence.

The Court accepted that the payments were not unreasonable director-related transactions. A lack of contractual relations in relation to remuneration for services between the Company and the respondents was not enough. Such inquiries must be centred on whether the payment was an unreasonable director-related transaction.

The Court observed:

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