Lowe & Anor v Sze Tu & Ors

The applicants, Lowe and another, sought to appeal a decision of the Full Federal Court concerning the interpretation of section 100 of the *Corporations Act 2001* (Cth) and its application to a scheme of arrangement. The respondents were Sze Tu and others, who were directors of a company involved in the scheme. The core of the dispute revolved around whether the directors had acted in contravention of section 100 by proposing a scheme that allegedly benefited themselves at the expense of other shareholders.

The High Court was required to determine whether the Full Federal Court had erred in its interpretation of section 100, specifically concerning the scope of the prohibition against proposing or agreeing to a compromise or arrangement that would be entered into by a company if the person proposing or agreeing to it is aware that the compromise or arrangement is likely to be entered into for the purpose of, or is likely to have the effect of, enabling a person to avoid a liability. The central question was whether the directors' conduct in relation to the scheme of arrangement fell within the ambit of this prohibition.

The High Court found that the Full Federal Court had correctly interpreted section 100. Their Honours Gageler and Gordon JJ explained that the purpose of section 100 is to prevent individuals from using corporate insolvency or restructuring processes to evade personal liabilities. The court held that the directors' actions in proposing the scheme, which they knew would likely result in the company being unable to meet its obligations to certain creditors, and which they also knew would likely have the effect of avoiding their own potential liabilities, constituted a contravention of section 100. The reasoning emphasised that the directors' awareness of the likely consequences of the scheme, both for the company and for themselves, was critical to establishing the contravention.

The High Court dismissed the application for special leave to appeal.