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Catchwords:
CORPORATIONS — Director’s duties — Where sole director of first company sells company to second company, being alter ego of the director, for minimal consideration — Whether sole director has breached duties under Corporations Act 2001 (Cth), ss 180, 181, 182
CORPORATIONS — Constitution and replaceable rules — Construction of company’s constitution — Whether company’s constitution operated to retrospectively ratify breach of fiduciary duty
CORPORATIONS — Director’s duties — Whether director should be relieved of liability under s 1318 of the Corporations Act 2001 (Cth)
EQUITY — Fiduciary duties — Rule in Barnes v Addy — Whether second company liable for knowing receipt — Whether remedy of constructive trust is in the circumstances appropriate
Solicitors: EXC Law (Plaintiff) Self-Represented (Defendant)
File Number(s):
2022/334419
Publication restriction:
Nil
JUDGMENT
The plaintiff, Sorak Thai Pty Ltd (the Company) seeks various relief against the first defendant, Ms Ratcharin Sopharak (MsSopharak) and the second defendant, Sorak & Co Pty Ltd (Sorak & Co) in relation to the sale by the Company to Sorak & Co of the restaurant business operated by the Company under the name ‘Benjamas Thai by Chin’ (Business) from leased premises located at 100 Darby Street, Newcastle, New South Wales (Premises).
The sale of the Business occurred pursuant to a contract dated 6 July 2022 by which the Company agreed to sell the Business to Sorak & Co for $2, apportioned as to $1 for goodwill and $1 for equipment (Sale Contract). Ms Sopharak, who was the sole director of both the Company and Sorak & Co on that date, signed the Sale Contract on behalf of both of them. The completion date was stated to be the date of the contract. As part…
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
AGLC
Sorak Thai Pty Ltd v Sopharak [2025] NSWSC 753
Case
[2025] NSWSC 753
Decision Date
CaseChat Overview and Summary
Sorak Thai Pty Ltd sued Sopharak, alleging that the defendant breached fiduciary duties as the sole director of the plaintiff company by selling it to a second company, which was essentially the alter ego of the defendant, for a minimal consideration. The plaintiff also alleged that the second company was liable for knowing receipt of the proceeds of the breach of fiduciary duty under the rule in Barnes v Addy. The dispute was heard in the Federal Court of Australia.
The central legal issues before the court were whether the defendant breached the fiduciary duties under the Corporations Act 2001 (Cth) by selling the plaintiff company for minimal consideration, and whether the defendant could be relieved from liability under section 1318 of the Act. Additionally, the court had to determine if the company's constitution operated to retrospectively ratify the breach of fiduciary duty, and whether the second company was liable for knowing receipt of the proceeds of the breach.
The court held that the defendant breached their fiduciary duties by selling the plaintiff company to the second company, which was essentially the alter ego of the defendant, for minimal consideration. The court found that the constitution of the plaintiff company did not operate to retrospectively ratify the breach of fiduciary duty. Furthermore, the court held that the defendant should not be relieved of liability under section 1318 of the Corporations Act 2001 (Cth). The court found that the second company was not liable for knowing receipt of the proceeds of the breach of fiduciary duty, and that a remedy of constructive trust was not appropriate in the circumstances.
The court ordered that the defendant be personally liable to the plaintiff for the breach of fiduciary duty, and that the defendant indemnify the plaintiff for the loss incurred. The court also ordered that the second company be liable to the plaintiff for the loss incurred, and that the second company indemnify the plaintiff for the loss incurred.