The Full Federal Court has recently found that a complex
arrangement involving the entry into a deed by an insolvent
debtor, and payments to particular creditors under that deed,
was an uncommercial transaction and voidable under section
588FB Corporations Act 2001.
Under section 588FB, a transaction is
"uncommercial" if it may be expected a reasonable
person in the company's circumstances would have not
entered into the transaction having regard to various factors.
The relevant factors include the benefits (if any) and
detriment to the company of entering into arrangement. Section
588FB only applies to transactions of "insolvent
companies" (that is, for which insolvency is proved under
the Act), which can be voided on application of a
In the above decision, the Full Federal Court found that a
composite set of circumstances constituted an
"uncommercial transaction" of the debtor company,
"LSE", (now in liquidation). LSE acted as an agent
for finance companies (the "Capital companies"). LSE
leased photocopying equipment to end-users on behalf of the
Capital companies (as undisclosed principals).
After discovering fraud by LSE's director, resulting in
mareva (asset-preservation) orders against LSE on another
financier's application, the Capital companies insisted
that LSE execute a deed requiring the payment of large sums of
money to them over several months, and the payout of all
equipment rental agreements. Whilst payments of several million
dollars were made, ultimately LSE went into liquidation some
The Full Federal Court found that a series of
inter-connected steps, including entry into the deed and
payments under that deed, were "uncommercial" and
voidable on the liquidator's application. The evidence was
that LSE was placed under pressure to execute the deed, and the
deed resulted in no real benefits (and significant detriment)
to LSE, whilst substantially benefiting the Capital
Accordingly, the Capital companies' appeal was
Addisons acted for the applicant liquidator who is
now to recover over $5million for distribution to
However, an application for special leave to appeal has been
lodged with the High Court of Australia.
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Peter Sise explores how your contractual clause for recovery of legal costs might not do what you think it does.
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”
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).