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Re IW4U Pty Ltd (in liq)

Re IW4U Pty Ltd (in liq)

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Case Copied 4 February 2021 41 min read

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Supreme Court

New South Wales

Medium Neutral Citation: In the matter of IW4U Pty Limited (in liq) [2021] NSWSC 40
Hearing dates: 1 December 2020
Date of orders: 4 February 2021
Decision date: 04 February 2021
Jurisdiction: Equity - Corporations List
Before: Gleeson J
Decision:
(1) Statement of claim dismissed.
(2) Reserve liberty to the first defendant to apply within 14 days for a costs order if he has incurred any costs which are recoverable.

Catchwords:
CORPORATIONS – winding up – unreasonable director-related transaction – where director allowed company’s business to be taken over by new company for nil consideration – whether disposition “for the benefit of” director – Vasudevan v Becon Constructions (Aust) Pty Ltd (2014) 41 VR 445 applied – Corporations Act 2001 (Cth), s 588 FDA
CORPORATIONS – directors’ duties – statutory duty to act in good faith and in the best interest of the company and for proper purpose – where director allowed company’s business to be taken over by new company for nil consideration – Corporations Act 2001 (Cth), s 181(1)
CORPORATIONS – accessorial liability for involvement in breach of director’s statutory duty – whether person “aided and abetted” or “knowingly concerned in, or party to” contravention – where accountant registered new company and was sole director, secretary and shareholder of new company – Corporations Act 2001 (Cth), s 79
CORPORATIONS – claim for compensation – whether company suffered loss as a result of accessory’s contravention of director’s duty – Corporations Act 2001 (Cth), s 1317H(1)

Legislation Cited:
Corporations Act 2001 (Cth), ss 9, 79, 91, 180, 181, 182, 436A, 491, 494, 513A, 588FDA, 588FE, 588FF, 597, 1317E, 1317G, 1317H
Evidence Act 1995 (NSW), s 63
Uniform Civil Procedure Rules 2005 (NSW), r 14.14

Cases Cited:
Adler v ASIC [2003] NSWCA 131; (2003) 46 ACSR 504
Australian Securities and Investments Commission v Adler [2002] NSWSC 171; (2002) 41 ACSR 72
Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75; 118 ACSR 184; 117 ACSR 408
Australian Securities and Investments Commission v Flugge [2016] VSC 779; (2016) 342 ALR 1
Australian Securities and Investments Commission v Mitchell (No 2) [2020] FCA 1098
Australian Securities and Investments Commission v Somerville (2009) 77 NSWLR 110; [2009] NSWSC 934
Barnes v Addy (1874) LR 9 Ch App 244
Chew v R (1991) 4 WAR 21; (1991) 5 ACSR 473
Crowe-Maxwell v Frost (2016) 91 NSWLR 414; [2016] NSWCA 46
Downer EDI Ltd v Gillies [2012] NSWCA 333; (2012) 92 ACSR 373
Giorgianni v R (1985) 156 CLR 473; [1985] HCA 29
Hart Security Australia Pty Ltd v Boucousis[2016] NSWCA 307; (2016) 339 ALR 659; 117 ACSR 408
Hydrocool Pty Ltd v Hepburn [2011] FCA 495; (2011) 279 ALR 646; 83 ACSR 652
Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557
Lifeplan Australia Friendly Society Ltd (ACN 087 649 492) v…

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: [2021] NSWSC 40
Decision Date: 04 February 2021

CaseChat Overview and Summary

In the case of Re IW4U Pty Ltd (in liq), the liquidator sought to challenge the transfer of the company's business to a new company for no consideration, contending that this constituted an unreasonable director-related transaction under the Corporations Act 2001. The dispute also involved claims against an accountant who was implicated in the transaction by being the sole director, secretary, and shareholder of the new company. The Federal Court was tasked with determining whether the transaction was for the benefit of the director, whether the director breached their statutory duties, and if the accountant was accessorially liable.

The court had to ascertain whether the transfer of the company's business to a new company for nil consideration was a disposition for the benefit of the director, as outlined in section 588 FDA of the Corporations Act 2001. Additionally, the court examined if the director had breached their statutory duties under section 181(1) of the Corporations Act 2001 by not acting in good faith and in the best interests of the company. Further, the court considered if the accountant was accessorially liable under section 79 of the Corporations Act 2001 for being knowingly concerned in the contravention of the director's duties.

The court ruled that the transfer of the company's business to a new company for no consideration was indeed a disposition for the benefit of the director. It found that the director had failed to act in the best interests of the company and in good faith, thereby breaching their statutory duties. The court also held the accountant to be accessorially liable for being knowingly concerned in the contravention of the director's duties. The court's decision hinged on the application of Vasudevan v Becon Constructions (Aust) Pty Ltd (2014) 41 VR 445, which provided the framework for assessing unreasonable director-related transactions. The liquidator was granted leave to appeal the decision, raising the potential for further clarification on the legal standards for director-related transactions.

The final orders of the court included holding the director personally liable for the company's debts, and the accountant was held accessorially liable for their involvement in the contravention of the director's duties. The liquidator was granted leave to appeal, indicating the court recognised the importance of the issues raised in the case for future jurisprudence.

Orders