Vasudevan v Becon Const [2014] VSCA 14

A company gave a mortgage to a creditor of one of its directors so that the creditor would not sue that director on its guarantee. Liquidators were appointed and the proceeds of the sale of the mortgaged property were held in trust. The creditor claimed the proceeds. The liquidators sought to have the mortgage declared void as an unreasonable director-related transaction pursuant to section 588FE of the Corporations Act.

The question was whether the deed and mortgage were made for the director’s benefit because they relieved him of his obligations?

The lower court found that the section did not apply because the creditor took the mortgage for its own benefit and not the benefit of the director, even though a benefit was derived by him. The liquidators appealed.

The Court of Appeal found that the section was aimed at preventing errant directors from stripping benefits out of companies to their own advantage and construed benefit as including both direct and indirect benefits. In any event the court found that the director did receive a direct benefit and the mortgage was a transfer for his benefit, unreasonable and void. The court ordered the proceeds to be paid out to the liquidators.

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