Some of the issues that need to be considered include section 588FE(6A) of the Corporations Act 2001.  That section deals with unreasonable director-related transactions and can be utilised by liquidators where it is determined that directors have paid excessive bonuses or made non-commercial loans / payments to themselves or their family members.  Unlike other voidable transaction claims, the major issue here is that there is no need to prove the company was insolvent.  Also, transactions can be recovered where they arise 4 years before the relation-back day (rather than, for example, 6 months for unfair preference claims).

The basic elements of the cause of action from the liquidators perspective are:

  1. There has to be a transaction – usually this is a payment but the transaction can take other forms e.g. where the company sold its property or issued securities.
  1. The transaction / payment has to be made to a director of the company or their spouse or relatives.
  1. The primary element to be proved is that a reasonable person in the company’s position would not have entered into the transaction, particularly having regard to the benefits flowing to the company and the other parties to the transaction and the detriment which it would cause the company.  Some things to look out for are:

(a)  whether the company received consideration in exchange for the payment;

(b)  if the payment was a loan, whether the director or their relative provided security to the company or was required to pay interest;

(c)   the effect of the payment on the company’s financial position – for example, a reduction in available cash or assets to pay creditors or funds the company’s operations.