Court of Appeal
Supreme Court
New South Wales
Medium Neutral Citation: Changela v Dracoma Pty Ltd [2025] NSWCA 186 Hearing dates: 04 August 2025 Date of orders: 14 August 2025 Decision date: 14 August 2025 Before: Bell CJ at [1];
Leeming JA at [59];
McHugh JA at [64].Decision: (1) Appeal allowed.
(2) Vary the judgment of the primary judge made on 14 March 2025:
(a) in paragraph 1, by substituting “$119,738.15, including interest of $13,120.15” for “$400,502.53, including interest of $43,884.53”; and
(b) in paragraph 4, by substituting “$870,369.59, including interest of $95,369.59" for "$1,151,133.97, including interest of $126,133.97”.
(3) Pursuant to rule 51.19 of the Uniform Civil Procedure Rules 2005 (NSW), the Respondent pay restitution:
(a) of $280,764.38 to the First and Second Appellants plus interest from 11 April 2025; and
(b) of $280,764.38 to the Third Appellant plus interest from 11 April 2025.
(4) The Respondent pay the Appellants' costs of the appeal.
Catchwords: CORPORATIONS –– whether repayment of informal loans repayable on demand constituted unreasonable director-related payments contrary to s 588FDA of the Corporations Act – where company solvent – where company had no other trade creditors and no ongoing rent or employee expenses – where company had no existing contractual obligations – where company contemplating entering into future contracts for export of chickpeas to India
Legislation Cited: Conveyancing Act 1919 (NSW) s 37A
Corporations Act 2001 (Cth) ss 254T, 477(2)(c), 588F(1)(c), 588FA, 588FB, 588FDA, 588FE, 588FF
Family Law Act 1975 (Cth)
Cases Cited: Aviation 3030 Pty Ltd (In Liq) v Lao [2022] FCA 458
Buzzle Operations Pty Ltd (In liq) v Apple Computer Australia Pty Ltd (2011) 81 NSWLR 47; [2011] NSWCA 109
CEG Direct Securities Pty Ltd v Cooper as liquidator of Runton Investment and Development Pty Ltd (in liq) [2025] FCAFC 47
Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWCA 46
Cussen v Sultan [2009] NSWSC 1114
Featherstone v Ashala Model Agency Pty Ltd (in liq) [2018] 3 Qd R 147; [2017] QCA 260
Fitz Jersey Pty Ltd v Atlas Construction Group Pty Ltd (in liq) [2021] NSWSC 1692
In the matter of Allscope Concrete & Pumping Pty Ltd (in liq) [2024] NSWSC 1476
In the matter of Bryve Resources Pty Ltd [2022] NSWSC 647
In the matter of Gondon Five Pty Ltd (in liq) [2020] NSWSC 1769
In the matter of IW4U Pty Ltd (in liq) [2021] NSWSC 40
In the matter of Pulse Interactive Pty Ltd (in liq) [2019] NSWSC 22
In the matter of RMATA Cutelli Pty Ltd (in liq) [2018] NSWSC 382
In the matter of Rococo Group Pty Ltd (in liq) [2022] VSC 167
In the matter of Sans Pareil Estate Pty Ltd (in liq) [2024] NSWSC 255
In the matter of ZH International Pty Ltd (in liquidation) [2022] NSWSC 2
Lewis v Doran [2005] NSWCA 243; 219 ALR 555
Pleash (Liquidator), in the matter of SFG Relocations Pty Ltd v Fourie (No 3) [2024] FCA 583
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- Case
- [2025] NSWCA 186
- Decision Date
CaseChat Overview and Summary
The central legal issue before the Court was whether the primary judge had erred in finding that the repayments of these informal loans were unreasonable director-related payments. This required the Court to determine the proper application of section 588FDA, particularly in circumstances where a company is solvent and the payments are made to directors in repayment of loans that were immediately repayable.
The Court reasoned that for a payment to be an unreasonable director-related payment under s 588FDA, it must be a payment that a reasonable person in the company's position would not have been willing to make, having regard to the matters in s 588FDA(2). The Court found that given the company's solvency, lack of other creditors or ongoing expenses, and the fact that the loans were repayable on demand, the repayments were not unreasonable. The Court noted that the company was not under any pressure to make these payments and had no other pressing financial demands.
The appeal was allowed, and the judgment of the primary judge was varied. The amount ordered to be repaid by the respondent was significantly reduced, and the respondent was ordered to pay restitution to the appellants for specific amounts, plus interest. The respondent was also ordered to pay the appellants' costs of the appeal.
Orders
Orders of the court
(1) Appeal allowed.
(2) Vary the judgment of the primary judge made on 14 March 2025:
(a) in paragraph 1, by substituting “$119,738.15, including interest of $13,120.15” for “$400,502.53, including interest of $43,884.53”; and
(b) in paragraph 4, by substituting “$870,369.59, including interest of $95,369.59" for "$1,151,133.97, including interest of $126,133.97”.
(3) Pursuant to rule 51.19 of the Uniform Civil Procedure Rules 2005 (NSW), the Respondent pay restitution:
(a) of $280,764.38 to the First and Second Appellants plus interest from 11 April 2025; and
(b) of $280,764.38 to the Third Appellant plus interest from 11 April 2025.
(4) The Respondent pay the Appellants' costs of the appeal.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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