Unreasonable director related transactions: more power to liquidators

The unreasonable director related transaction provisions in section 588FDA of the Corporations Act 2001 (Act) are among its most powerful, with long arms that can reach back years. Transactions that were entered into up to four years before the appointment of a liquidator can be set aside.

In 2013, the NSW Supreme Court decision of Great Wall¹ seemingly significantly reduced the usefulness of this section. In that case, Justice Brereton took the view that payments to companies could not be unwound, even if the miscreant director was the sole shareholder of the company which wrongfully received funds.

However, the recent Victorian Court of Appeal decision in Vasudevan² has corrected this situation. A court may take into account any benefit that a director receives, including a benefit as a shareholder of a company, when deciding to render void an unreasonable director related transaction.