TGIF 17 April 2026 – Full Federal Court Clarifies Scope Of ‘Unreasonable Director Related Transactions’

This week’s TGIF considers the Full Federal Court decision in Yang v Wong [2026] FCAFC 39 where a payment by a company to a related entity, to repay money owing to the mother of one director, was found not to be an unreasonable director-related transaction pursuant to section 588FDA of the Corporations Act 2001 (Cth).

Key takeaways

• This decision confirms the narrow definition of a ‘payment’ under section 588FDA, which must be made by the company to the prescribed parties. 
• The presence of an intermediary means the payment fails to “alter the legal rights and obligations between the alleged payer and payee”. This is distinguishable from where the payer directs a third party indebted to the payer to pay an amount to the payee, to whom the payer is indebted. 
• While there may be forensic advantage in establishing an unreasonable director-related transaction under section 588FDA, where the relevant payment does not change the legal rights and obligations between the company payor and the ultimate payee, an alternative claim under the uncommercial transaction provision section 588FB (or otherwise) should be considered.

Summary of application 

Axis North Pty Ltd (Axis North) was wound up by court order in March 2022, upon application of the applicant, Ms Yang. 

In these proceedings, Ms Yang sought orders that payments made by Axis North were made to, or for the benefit of, Ms Wong and, accordingly, may be avoided under sections 588FDA and 588FE of the Corporations Act as an ‘unreasonable director-related transaction’.

While such orders are usually sought by liquidators, it was not in dispute between the parties that Ms Yang had acquired the right to pursue them from the liquidators of Axis North.

Background

In March 2018, Ms Yang, the appellant, entered into a loan agreement where she advanced $3.5 million to Axis North. Axis North was part of the Golden Gate Property Group (the Group), which operated to acquire and develop property.

The Group was run by two directors, Mr So and Mr Clancy. Mr So gave evidence that Axis North intended to use this sum of $3.5 million to repay the outstanding indebtedness of the Group to Ms Wong, the defendant. Mr So was Ms Wong’s son.

Within a week after Ms Yang advanced the $3.5 million to Axis North, Axis North paid this sum of money to Wharf Road Surfers Paradise Pty Ltd (Wharf Road), another entity within the Group. While Axis North and Wharf Road record this payment as a loan, there was no loan documentation; and no security, terms or interest were agreed.

Shortly after, Wharf Road paid Ms Wong the sum of $2.8 million.

In November 2023, the appellant commenced proceedings for the amount of $2.8 million to be repaid to the appellant pursuant to sections 588FDA and 588FE of the Corporations Act.

The issues 

While the primary judge agreed that a reasonable person in Axis North’s circumstances would not have entered into the transaction pursuant to section 588FDA(3), the appellant’s claim failed because the transaction did not constitute a payment made by Axis North to the defendant pursuant to section 588 FDA(1) - (2).

The appellant appealed on three grounds. Only the first ground of appeal was decided on its merits, as the other two grounds were dismissed for procedural reasons. In effect, the appellant argued that Axis North made a payment to Ms Wong, as the meaning of ‘transaction’ under section 588FDA, the meaning of ‘payment’ in ordinary English expression, and the anti-avoidance purpose of section 588FDA, required courts to take a wide view of what constitutes a transaction to include both direct and indirect benefits.

The Decision

The Full Federal Court dismissed the appeal.

The main reason was because the meaning of ‘payment’ was not described merely by reference to the flow of value. More than that, it must affect or alter legal rights and obligations between the relevant parties. By way of example, where A has transferred value to C, and C uses this to discharge its own indebtedness to B without reference to A, there is no payment by A to B. This is analogous to this case - though there was a flow of value, there was no change to the legal rights between A and B.

Next, the Court considered the meaning of ‘transaction’, as defined in section 9 of the Corporations Act and as considered in the authorities in relation to the operation of section 588FB, to be irrelevant. The definition of ‘payment’ was specific and only applied for the purposes of section 588FDA “if, and only if” it fell within the specific categories of transactions identified. In contrast, the term ‘transaction’ had no such meaning, and was not analogous. This is despite section 588FB and section 588FDA being predicated upon substantially the same enquiry. 

Further, while the courts favour a wide construction of the term ‘benefit’ as including both direct and indirect benefits, that did not affect the meaning of the term ‘payment’. 

As an aside, the Full Federal Court corrected the primary judge to clarify that a gift of value would create and alter legal rights and obligations as between two parties, but that this was not material to this case. 

Comment

This case serves as a reminder that there is a higher bar in establishing an unreasonable director-related transaction under section 588FD, as opposed to an uncommercial transaction under section 588FB. Section 588FD only applies to a specific set of relationships.

While there are benefits to plaintiffs in establishing an unreasonable director-related transaction (such as the longer relation-back period under section 588FE(6A)), consider whether an uncommercial transaction may be claimed in the alternative.

Originally published 17 April 2026.