Universal Financial Group v Mortgage Elimination Services [2006] NSWSC 1132

Universal Financial Group v Mortgage Elimination Services [2006] NSWSC 1132

The Court found that the directions to AFG and Lawfund and the deed of assignment were uncommercial and insolvent transactions (and also unreasonable director-related transactions), primarily because they diverted valuable commission income and legal claims from MES, for little or no benefit, at a time when MES was insolvent and facing legal claims. These transactions depleted the company's assets to the detriment of creditors and offered no valid commercial justification. Accordingly, they were voidable under ss 588FE(2), (3), and (6A) of the Corporations Act 2001 (Cth), and appropriate relief was ordered under s 588FF.

Jurisdiction
Australia
Judgment Date
31 October 2006
Procedural Posture
Corporations/winding Up Proceedings and Cross Claim / Judgment on Cross Claim in Liquidation
Outcome
Declarations and orders made: that specified directions and deed of assignment are voidable as commercial, insolvent, and unreasonable director-related transactions; payment orders in favour of MES (in liq); further directions for orders and costs.
Legal Topics
['voidable Transactions' 'uncommercial Transactions' 'insolvent Transactions' 'unreasonable Director Related Transactions' "directors' Duties" 'winding Up in Insolvency']
['corporations Law' 'equity'] ['voidable Transactions' 'uncommercial Transactions' 'insolvent Transactions' 'unreasonable Director Related Transactions' "directors' Duties" 'winding Up in Insolvency']

Case Brief

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Procedural Posture

Corporations/winding Up Proceedings and Cross Claim / Judgment on Cross Claim in Liquidation

Legal Issues

  1. 1 ['Whether directions for payment and deed of assignment constituted uncommercial, insolvent and unreasonable director-related transactions under the Corporations Act 2001 (Cth) and were thereby voidable transactions' 'Whether directors breached their fiduciary duties to MES by diverting commissions or assigning causes of action' 'What relief is appropriate for MES (in liq) in respect of such transactions']

Ratio Decidendi

The Court found that the directions to AFG and Lawfund and the deed of assignment were uncommercial and insolvent transactions (and also unreasonable director-related transactions), primarily because they diverted valuable commission income and legal claims from MES, for little or no benefit, at a time when MES was insolvent and facing legal claims. These transactions depleted the company's assets to the detriment of creditors and offered no valid commercial justification. Accordingly, they were voidable under ss 588FE(2), (3), and (6A) of the Corporations Act 2001 (Cth), and appropriate relief was ordered under s 588FF.

Court Disposition

Declarations and orders made: that specified directions and deed of assignment are voidable as commercial, insolvent, and unreasonable director-related transactions; payment orders in favour of MES (in liq); further directions for orders and costs.

Orders

  • ['Declaration that deed of assignment dated 20 July 2005 is a voidable transaction under s 588FE(2), (3), and (6A) of the Corporations Act 2001 (Cth), and is void from that date.' 'Declaration that directions to AFG and Lawfund to pay commissions to Smarter rather than MES were voidable transactions under s...