Director duties and unreasonable director transactions

Below we look back a few years to a Liquidation run by Balance Insolvency founder Timothy Cook for a reminder that: 

  • Directors need to consider the reasonableness of transactions carefully. 

  • Directors need to be aware of and act in accordance with their director duties. 

  • Directors need to consider and separate their interests and those of the Corporate entity.   

  • Liquidators and the Court can hold directors accountable in various ways. 

Notes 

  • Bryve Resources Pty Ltd (In Liq) (Bryve) invested in (shares) and lent money to an (then) ASX-listed entity Shaw River Manganese Limited (DOCA) (SRR) who (via various subsidiaries) conducted mine work in Namibia. Bryve took the relevant security over the SRR and its assets. 

  • Bryve – Voluntary Administration (Timothy Cook) – 14 March 2017, Liquidation (Timothy Cook) – 28 April 2017.   

  • Bryve’s sole director also operated a business in Namibia, Qube Logistics (Pty) Ltd (Qube) which provided logistics services (to the Namibian mine run by a SRR subsidiary). Qube received unsecured loans from Bryve with no arrangement, beneficial terms or capacity/view to repayment. 

  • The Liquidator filed in the NSW Supreme Court claiming (successfully plus costs) for $420k – director and $1.5m – Qube, in unreasonable director-related transactions and beach of director duties. 

  • The Court found that: 

  • Despite also being a creditor of Bryve (via unsecured director loans), a reasonable person (in the director’s position) would not have made the payments. 

  • While there was benefit to Bryve (by way of reduced liability to the director), available cash was applied to (or for the benefit of) the director and/or Qube effectively excluding other creditors. 

  • Bryve didn’t have to be insolvent at the time of the transactions. 

  • The interpretation ‘for the benefit of’ can be broad. 

For further details, analysis and perspective, refer to: 

Balance Insolvency