Australia: Directors breaching their fiduciary duties: transaction challenged by the receiver

In Allco Funds Management Limited v Trust Co (Re Services) Ltd [2014] NSWSC 1251, an inter-company loan transaction was challenged by a receiver appointed by the secured creditor to one of the companies. Common directors were involved in the transaction. The issue was whether the directors breached their fiduciary duties entitling the company via the receiver to have the transaction set aside.

The background to the case

AFML held 109,687,077 units in a registered management scheme where it had subscribed $1.00 per unit. RFML was the responsible entity for the fund.

For reasons relating to stamp duty, AFML and RFML entered into a loan agreement where AFML lent $109,687,077 to RFML with a fixed repayment date.

RFML used the advance to redeem AFML's units in the fund. The effect was that AFML's beneficial equity interest in the fund was converted into a loan.

A variation of the loan was later agreed where the repayment date was postponed with repayment being dependent upon the happening of certain events, which were unlikely to occur in the imminent future.

There were common directors who committed AFML and RFML to the loan agreement and the variation.

AFML subsequently went into liquidation and proceedings were brought by the receiver to set aside the variation.

It was not contended by AFML that the loan was a sham or that it did not reflect the true and actual agreement of the parties or that it was unenforceable according to is terms.

There was no provision in AFML's articles of association authorising the directors' conduct and there was no members' resolution authorising the transactions.

The complaint against the directors

The receiver, on behalf of AFML, argued that:

  • the common directors breached their fiduciary obligations to AFML (to the knowledge of RFML) by placing themselves in a position where their duties to AFML conflicted with their duties to RFML;
  • the common directors breached their fiduciary and statutory obligations to AFML (with the knowing participation of RFML) that required them to exercise their powers and discharge their duties as directors in good faith, in the best interests of AFML and for a proper purpose; and
  • AFML was entitled to an order setting aside the variation and the redemption of the units in the fund.

The decision

The Court made the following findings:

  • AFML's interests, both economic and legal, were not the same as RFML's.
  • Where a director has acted in breach of their fiduciary duty, the fairness or unfairness of the transaction is irrelevant.
  • Unless the articles of association of the company otherwise provide, a contract made in breach of the fiduciary duty (to the knowledge of the other party) will be voidable at the option of the company unless the director makes a full disclosure of the nature of their interest in the contract to the members of the company, in general meeting, who must approve the contract by ordinary resolution.
  • A provision in the articles of association may validate a contract that would otherwise be voidable under the general law. The director bears the onus of proving there has been strict compliance with such a provision.
  • Where there is no relevant provision in the articles of association and the transaction has not been approved by the members of the company in general meeting, it will be rare for a court to infer that there has been informed consent by the company.
  • The nature of the conflict was revealed by the dispute. If the variation was set aside, the loan would be repayable to AFML much earlier.
  • AFML was entitled to have the variation set aside.
  • AFML was also entitled, at its election, to have the loan agreement set aside and its units reinstated.

Although it was not necessary, the Court also considered the statutory duties owed by the directors of AFML and concluded that the directors had also breached their statutory duties.


Where a director has acted in breach of their fiduciary duty, the fairness or unfairness of the transaction is irrelevant.

Where, for example, a transaction is proposed between related entities, common directors need to be aware of their conflicting fiduciary duties and the steps they should take to comply with their duties.

A contract made in breach of the fiduciary duty will be voidable at the option of the first company unless the director makes a full disclosure of the nature of their interest in the contract to the members of the company, in general meeting, who must approve the contract by ordinary resolution.

Alternatively the director or directors should disclose their interest in the matter and leave the directors' meeting whilst the matter is discussed and a vote is taken. If the directors are the only directors, the matter must be referred to the members with full disclosure of any detriment to the company, their interest, and the details of the benefits to be gained by the other company.

Where the company is a wholly owned subsidiary, it is permissible for the constitution of the subsidiary to expressly authorise a director to act in the best interests of the holding company, subject to section 187 of the Corporations Act, which requires a director to act in good faith in the best interests of the holding company and which provides that the subsidiary must not be insolvent or become insolvent because of the director's act.

The decision in Allco gives a warning that suspect transactions are capable of being attacked by receivers or liquidators.

Section 237 of the Corporations Act also enables a member, former member, or person entitled to be registered as a member of the company or of a related body corporate to seek leave from the Court to bring a derivative action on behalf of the company where it is probable that the company will not itself bring the proceedings. This commonly occurs where it is alleged the directors have done something in breach of their duties or acted contrary to the Corporations Act.

In an insolvency scenario a transaction may also be capable of being attacked because it is an unfair preference, an uncommercial transaction or an unreasonable director-related transaction.

Winner – EOWA Employer of Choice for Women Citation 2009, 2010, 2011 and 2012
Winner – ALB Gold Employer of Choice 2011 and 2012
Finalist – ALB Australasian Law Awards 2008, 2010, 2011 and 2012 (Best Brisbane Firm)
Winner – BRW Client Choice Awards 2009 and 2010 - Best Australian Law Firm (revenue less than $50m)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.