Changela v Dracoma Pty Ltd

In *Changela v Dracoma Pty Ltd*, the Court of Appeal of New South Wales considered whether the repayment of informal loans, repayable on demand, constituted unreasonable director-related payments under section 588FDA of the *Corporations Act 2001* (Cth). The company was solvent at the time of repayment and had no existing trade creditors, ongoing rent or employee expenses, or other contractual obligations, although it was contemplating future export contracts.

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.