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CORPORATIONS ACT 2001

CHAPTER 5 - EXTERNAL ADMINISTRATION  

PART 5.7B - RECOVERING PROPERTY OR COMPENSATION FOR THE BENEFIT OF CREDITORS OF INSOLVENT COMPANY  

Division 2 - Voidable transactions  

SECTION 588FDA  UNREASONABLE DIRECTOR-RELATED TRANSACTIONS  

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588FDA(1)  [``unreasonable director-related transaction'']  


A transaction of a company is an unreasonable director-related transaction of the company if, and only if:


(a) the transaction is:


(i) a payment made by the company; or

(ii) a conveyance, transfer or other disposition by the company of property of the company; or

(iii) the issue of securities by the company; or

(iv) the incurring by the company of an obligation to make such a payment, disposition or issue; and


(b) the payment, disposition or issue is, or is to be, made to:


(i) a director of the company; or

(ii) a close associate of a director of the company; or

(iii) a person on behalf of, or for the benefit of, a person mentioned in subparagraph (i) or (ii); and


(c) it may be expected that a reasonable person in the company's circumstances would not have entered into the transaction, having regard to:


(i) the benefits (if any) to the company of entering into the transaction; and

(ii) the detriment to the company of entering into the transaction; and

(iii) the respective benefits to other parties to the transaction of entering into it; and

(iv) any other relevant matter.

The obligation referred to in subparagraph (a)(iv) may be a contingent obligation.

Note: Subparagraph (a)(iv) - This would include, for example, granting options over shares in the company.

588FDA(2)  [Clarification of test]  


To avoid doubt, if:


(a) the transaction is a payment, disposition or issue; and


(b) the transaction is entered into for the purpose of meeting an obligation the company has incurred;

the test in paragraph (1)(c) applies to the transaction taking into account the circumstances as they exist at the time when the transaction is entered into (rather than as they existed at the time when the obligation was incurred).

588FDA(3)  [Company creditor party to transaction]  


A transaction may be an unreasonable director-related transaction because of subsection (1):


(a) whether or not a creditor of the company is a party to the transaction; and


(b) even if the transaction is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency.


 



This information is provided by CCH Australia Limited. View the disclaimer and notice of copyright.
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