Vasudevan & Ors v Becon & Anor (Unreported, Supreme Court of Victoria, Randall AsJ, 11 March 2013)
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CORPORATIONS – Winding up in insolvency – Unreasonable director related transaction – Whether agreement by company to assume joint liability for obligations owed by director to third party and to grant mortgage to secure performance of assumed liability constituted unreasonable director related transaction within meaning of s 588FDA of Corporations Act 2001 (Cth) – Whether appropriate to avoid transaction ab initio – Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd & Anor (2006) 57 ACSR 693, distinguished; Re Great Wall Resources Pty Ltd (in liq)[2013] NSWSC 354, doubted and not followed – Corporations Act 2001 (Cth) ss 9, 588F, 588FA, 588FB, 588FD, 588FDA, 588FE, 588FG.
WORDS AND PHRASES – ‘On behalf of’; ‘For the benefit of’.
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Appearances:
Counsel
Solicitors
For the Appellants
Mr Leslie Glick SC with Ms L H Kirwan
SBA Law
For the First Respondent
Mr P D Crutchfield SC with Mr A A Segal
McKean Park Lawyers
For the Second Respondent
No appearance
NETTLE JA:
This is an appeal from a judgment of an Associate Judge. It concerns the meaning of s 588FDA of the Corporations Act 2001 (Cth) (‘the Act’).[1] The question is what is meant by the words a ‘payment, disposition or issue [of securities]’ by a company to ‘a person on behalf of, or for the benefit of’, a director of the company. The Associate Judge held that it does not extend to a mortgage given by a company to a creditor of a director of the company in consideration of a covenant by the creditor not to sue the director. For the reasons which follow, I take a different view.
[1]Which is set out below in [8].
The facts
At relevant times, Warren Thompson was the sole director and shareholder of Wulguru Pty Ltd (‘Wulguru’) and two other companies, Richmond Commercial Pty Ltd (‘Richmond’) and Mulgrave Commercial Pty Ltd (‘Mulgrave’).
On 23 February 2011, Mr Thompson, Wulguru, Richmond and the first respondent, Becon Constructions (Australia) Pty Ltd (‘Becon’) entered into a Deed to restructure debts which were owed to Becon by Mulgrave and Richmond and guaranteed by Mr Thompson. The Deed recorded that it was entered into at the request of Mr Thompson and Wulguru in circumstances where Mr Thompson had guaranteed the…
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
in the Matter of Wulguru Retail Investments Pty Ltd (In Liquidation) (ACN 084 836 859) , Between and David Raj Vasudevan as Joint and Several Liquidator of Wulguru Retail Investments Pty Ltd (In Liquidation) (Acn [2014] VSCA 14
Case
[2014] VSCA 14
Decision Date
CaseChat Overview and Summary
The case of Vasudevan v Becon Constructions (Aust) Pty Ltd involved the liquidators of the defendant company, Becon Constructions (Aust) Pty Ltd, bringing proceedings against the former director of the company, Mr. Vasudevan, in the Supreme Court of New South Wales. The dispute centred on whether an agreement between the company and Mr. Vasudevan, whereby the company assumed joint liability for certain debts owed by Mr. Vasudevan to a third party and granted a mortgage over its property to secure that liability, constituted an unreasonable director-related transaction under the Corporations Act 2001 (Cth). The liquidators sought to have the transaction voided to recover the assets for the benefit of the company’s creditors.
The legal issues before the court were whether the transaction constituted an unreasonable director-related transaction within the meaning of section 588FDA of the Corporations Act and, if so, whether it was appropriate to avoid the transaction ab initio. The court had to consider the principles established in prior cases such as Ziade Investments Pty Ltd v Welcome Homes Real Estate Pty Ltd & Anor and Re Great Wall Resources Pty Ltd (in liq), while also evaluating the specific circumstances of the case. The liquidators argued that the transaction was an unreasonable director-related transaction because it placed the company’s assets at risk for the benefit of Mr. Vasudevan.
The court found that the transaction did indeed constitute an unreasonable director-related transaction. It held that the transaction was entered into on behalf of the company for the benefit of Mr. Vasudevan, who was in a position of control over the company. The court distinguished the present case from Ziade Investments and doubted the applicability of Re Great Wall Resources, finding that the transaction was not a commercial judgment made in the ordinary course of business. Instead, it was a personal arrangement that placed the company’s assets at significant risk. The court ruled that it was appropriate to avoid the transaction ab initio to prevent the company’s assets from being unfairly depleted for the benefit of Mr. Vasudevan.
In light of the above, the court ordered that the transaction between Becon Constructions (Aust) Pty Ltd and Mr. Vasudevan be avoided ab initio. The court further directed that the mortgage over the company’s property be discharged, and that Mr. Vasudevan be liable to the company for the amount of the assumed liability. This decision aimed to restore the company’s assets for the benefit of its creditors and prevent similar transactions in the future that could unfairly prejudice the company’s financial position.