Ziade Investments v Welcome Homes Real Estate [2006] NSWSC 457

In this case a company that gave mortgages to various creditors to secure past debts. These mortgages were challenged by the company’s liquidator on the grounds they were insolvent and uncommercial transactions, unreasonable director-related transactions and unfair preferences.

The Court determined there was no evidence that mortgagor had entered into the mortgages in consideration for the mortgagors forebearing to sue for recovery of existing debts. Nor was there evidence that the mortgages were granted in consideration of future advances. The court noted that (at [31]):

It was argued that [the mortgagor].. had received considerable benefit from the advances made to it over the years. In my view, that is beside the point. The question is whether [the mortgagor] … benefited from the grants of the mortgages.

Accordingly the court held the mortgages were uncommercial transactions in terms of the Corporations Act 2001 (Cth), s 588FB(1).  The Court also found the grants of the mortgages were insolvent transactions in terms of the Corporations Act 2001 (Cth), s 588FC.

The Court held that since the grants of the mortgages were insolvent transactions and also uncommercial transactions made within two years of the relation-back day, the transactions were voidable in terms of the Corporations Act 2001 (Cth), s 588FE(3) and the Court made orders under s 588FF(1).

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