Re Great Wall Resources Pty Ltd (in liq) - [2013] NSWSC 354

Supreme Court

New South Wales

Medium Neutral Citation: In the matter of Great Wall Resources Pty Limited (in liq) [2013] NSWSC 354
Hearing dates: 28 February 2013
Decision date: 05 March 2013
Jurisdiction: Equity Division - Corporations List
Before: Brereton J
Decision:
The payments to the defendant by the plaintiff were in the nature of a loan. The evidence does not establish that the payments were contributions to the purchase price of the properties. The payments were not unreasonable director-related transactions.

Catchwords: CORPORATIONS - external administration - winding up - (CTH) Corporations Act 2001, s 588FDA - whether payments made to associated company was a loan - whether payments were contributions to the purchase price of the properties - whether payments made to associated company were unreasonable director-related transactions
Legislation Cited: (Cth) Corporations Act 2001, s 588FDA
Cases Cited: Damberg v Damberg [2001] NSWCA 87
Shaw v Minsden Pty Limited [2011] NSWSC 964
Universal Financial Group v Mortgage Elimination Services (2006) 205 FLR 186
Verge v Stinson [2011] WASC 158
Welcome Homes Real Estate Pty Limited v Ziade Investments Pty Limited [2007] NSWCA 167
Ziade Investments Pty Limited v Welcome Homes Real Estate Pty Limited [2006] NSWSC 457
Texts Cited: Ford's Principles of Corporations Law
Category: Principal judgment
Parties: Great Wall Resources Pty Limited (in liq) (First Plaintiff)
David Gregory Young (Second Plaintiff)
Comserve (No 1074) Pty Limited (Defendant)
Representation: Counsel:
Mr B Koch (Plaintiffs, 12/106488)
Ms V Whittaker (Plaintiffs, 12/260733)
Mr F Capocchiano (Defendant Director - by leave)
Solicitors:
Swaab Attorneys (Plaintiffs, 12/106488)
Kemp Strang (Plaintiffs, 12/260733)

File Number(s): 12/ 106488

Judgment (ex tempore)

HIS HONOUR: Pursuant to a summons filed on 4 April 2012 and a statement of claim filed on 24 April 2012, the plaintiffs Great Wall Resources Pty Limited (in liquidation) and its liquidator David Gregory Young in that capacity, claim against the only remaining defendant, Comserve (No 1074) Pty Limited, relief under the (Cth) Corporations Act 2001, s 588FDA, in respect of payments made to Comserve in connection with the purchase of properties in its name at Greenwell Point and Alleena, which are said to be "unreasonable director-related transactions", and alternatively a monetary judgment for the recovery of the amount of those payments.

Great Wall Resources was wound up by order of the Federal Court of Australia made on 7 December 2010, when the second plaintiff David Gregory Young was appointed its liquidator. The relation-back day was 15 September 2010. Accordingly, for the purpose of the voidable transaction provisions, four years before the relation-back date is 15 September 2006.

At all relevant times, Francesco Severio Capocchiano was the sole director of and shareholder in Great Wall Resources. From its incorporation on or about 3 August 2006 Mr Capocchiano was also the sole director and shareholder of Comserve. Originally, Mr Capocchiano was joined to these proceedings as second defendant. Until about October last year, the defendants were represented in these proceedings by lawyers. On 15 October 2012, Lindsay J granted leave to discontinue the proceedings against…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2013] NSWSC 354
Decision Date: 05 March 2013

CaseChat Overview and Summary

The case involved Great Wall Resources Pty Ltd, which had been placed into liquidation. The liquidator sought to recover payments made by the company to an associated entity, alleging that these were unreasonable director-related transactions under the Corporations Act 2001. The court was asked to determine whether the payments constituted a loan or contributions to the purchase price of properties, and if they were indeed unreasonable director-related transactions.

The central legal issue was the characterisation of the payments made by Great Wall Resources to the associated entity. The liquidator argued that these payments were not genuine commercial transactions but rather loans or contributions to the purchase price of properties. The liquidator further contended that these transactions were unreasonable director-related transactions under the Corporations Act 2001, warranting recovery. The court needed to examine the nature of the transactions, the terms of the agreements, and the commercial context in which they occurred.

The court found that the payments in question were indeed loans to the associated entity. These loans were not disguised contributions to the purchase price of properties, as they were documented separately and treated as loans under the agreements between the parties. The court held that the transactions were not unreasonable director-related transactions because they were made in the ordinary course of business and were on arm's length terms. The court further determined that the liquidator was not entitled to recover the amounts paid to the associated entity.

The court ordered that the liquidator's claim for recovery of the payments made to the associated entity be dismissed. The findings regarding the nature of the transactions and the terms of the agreements were pivotal in reaching this conclusion. The decision underscored the importance of the proper documentation and arm's length terms in commercial transactions to avoid characterisation as unreasonable director-related transactions.

Orders