What’s the scope of UDRT?

The right to bring unreasonable director-related transaction claims (“UDRT”) differ between States and Territories.

Yet UDRT is Federal legislation (s588FDA Corporations Act) and should be universally applied.

UDRT refers to a claim brought by a liquidator in circumstances where a transaction (eg money payments or uncommercial asset transfers, #phoenixactivity) is made to the benefit of a director (or close associate) and no reasonable person would have entered into that transaction.

The problem is how broad can this concept of ‘benefit to a director or close associate’ be?

Could it include related corporations (ie common shareholders or directors) or other unnatural persons?  

Different people have different viewpoints … unfortunately, so do the Courts in each jurisdiction.

The following is a summary of which States and Territories say ‘yes’ (applies to unnatural persons) or ‘no’:

– Federal Court: YES

– QLD, SA, NT, TAS, ACT: UNKNOWN

– NSW (Supreme Court (“SC”)): NO

– NSW (Court of Appeal (“CA”)): MAYBE (obiter)

– VIC (SC): NO (obiter) – VIC (CA): YES

– WA (SC): NO

In my view, the Pearce v Gulmohar (Federal) and Vasudevan v Becon (VIC (CA)) decisions are compelling.

The broader UDRT is applied the better, in my view.

#SVVoidables

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