Re Lesvos Pty Ltd - [2012] NSWSC 1288

Supreme Court

New South Wales

Medium Neutral Citation: In the Matter of Lesvos Pty Ltd [2012] NSWSC 1288
Hearing dates: 25 September 2012
Decision date: 25 September 2012
Jurisdiction: Equity Division - Corporations List
Before: Brereton J
Decision:
Declaration that certain transaction entered into by plaintiff company was an unreasonable director related transaction; order defendants to repay sum of $70,000 together with interest to plaintiffs; defendants to pay plaintiffs' costs

Catchwords: CORPORATIONS - external administration - unreasonable director related transactions - voidable transactions - Corporations Act, s 588FDA - Corporations Act, s 588FE - Corporations Act, s 588FF - whether transactions benefited company - where funds applied to recover funds expended by directors on legal fees on behalf of company - where funds applied by directors to repay director's mortgage - whether transactions benefited company - whether reasonable person in the company's circumstances would not have entered into transactions
Legislation Cited: (Cth) Corporations Act 2001, Pt. 5.7B, s 588FDA, 588FE, 588FF
(NSW) Civil Procedure Act 2005, s 100
Category: Principal judgment
Parties: Lesvos Enterprises Pty Limited (In Liq) ACN 078 840 338 - First Plaintiff
Mitchell Warren Ball - Second Plaintiff
Maria Alexiou - First Defendant
Arthur Alexiou - Second Defendant
Representation: Counsel:
J Hynes - Plaintiffs
J Jobson - Defendants
Solicitors:
Gadens Lawyers - Plaintiffs
Andresakis & Associates - Defendants

File Number(s): 2011/ 273971

Judgment (ex tempore)

HIS HONOUR: By originating process filed on 15 August 2011, the plaintiff Lesvos Enterprises Pty Limited (in liquidation) and its liquidator Mitchell Warren Ball seek orders against the defendants Maria Alexiou and Arthur Alexiou, that they pay to the company the sum of $326,131.52, being an amount equivalent to amounts paid to the defendants from funds of Lesvos. The proceedings are brought pursuant to (Cth) Corporations Act 2001, Pt. 5.7B, and in particular s 588FDA (unreasonable director related transactions). The first defendant, Ms Alexiou - who is also known as Maria Mihas - is and was at all relevant times the sole director of Lesvos and the second defendant is her husband.

Background

On 10 October 2000, the second defendant transferred a property, which, so far as I can ascertain from the evidence, is the property at XXXX ("Lot 158"), to Lesvos, for a consideration of $165,000. On the same date Lesvos mortgaged Lot 158 to Permanent Custodians Limited, securing advances of $100,000. This was said to be collateral security, implying that there was other security for the same advance.

On 8 December 2000, Lesvos and an associated entity commenced proceedings in this Court against Penrith White Water Stadium Limited.

By 17 September 2002, the first defendant was the owner of a property at XXXX ("Lot 19").

By August 2004, the defendants were jointly indebted to Wizard Home Loans for a total of $386,525. These were said to be mortgage loans, and were attributed registration numbers in some of the documentation, but were not registered on the title of Lot 19, and the probability is that they were secured on Lot…

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.

Continue reading Re Lesvos Pty Ltd

Details

AGLC: Re Lesvos Pty Ltd [2012] NSWSC 1288
Case: [2012] NSWSC 1288
Decision Date: 25 September 2012

CaseChat Overview and Summary

The case involved Lesvos Pty Ltd and its directors, where the Australian Securities and Investments Commission (ASIC) sought to have certain transactions declared void under the Corporations Act. The dispute was heard in the Federal Court of Australia. ASIC argued that the transactions were unreasonable and, therefore, voidable because they did not benefit the company and were not entered into by a reasonable person in the company's circumstances.

The legal issues before the court were whether the transactions, which involved the application of funds to recover legal fees expended by directors on behalf of the company and to repay a director's mortgage, benefited the company. The court also had to determine if a reasonable person in the company's position would have entered into these transactions. The court examined the relevant provisions of the Corporations Act, specifically sections 588FDA, 588FE, and 588FF, to assess the validity of the transactions.

The court found that the transactions did not benefit Lesvos Pty Ltd as they were not used for the company's business operations but rather to cover personal expenses of the directors. The court also determined that a reasonable person in the company's position would not have entered into these transactions, given the lack of benefit to the company. Consequently, the court declared the transactions void under the relevant provisions of the Corporations Act.

The final orders of the court declared the transactions void, null and of no effect. This decision ensured that the company's assets were preserved for the benefit of its creditors and that the directors were held accountable for their actions. The court's decision reinforced the importance of ensuring that director-related transactions are in the best interests of the company and are conducted in a manner consistent with the expectations of a reasonable person in the company's position.

Orders