Section 588FDA: indirect benefits to directors risk voiding a mortgage transaction

Pravin Aathreya and Lauren Connolly of Johnson Winter Slattery review a recent decision in which the Federal Court held that the pre-liquidation grant of a mortgage by a company to the defendant company was an unreasonable director-related transaction under section 588FDA of the Corporations Act and highlights the vulnerability to attack of such related-party transactions, insofar that they confer an indirect benefit to the company’s directors via reduced liability under personal guarantees without any reciprocal benefit to the company.

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