This week the Full Federal Court delivered judgment in CEG Direct Securities Pty Ltd v Cooper as liquidator of Runtong Investment and Development Pty Ltd (in liq) [2025] FCAFC 47—a decision of national significance for insolvency practitioners, financiers, and restructuring professionals.
The case arose from a controversial ruling at first instance, where a mortgage granted by Runtong to secure loans to related entities was declared an “unreasonable director-related transaction” under s 588FDA of the Corporations Act. The liquidator succeeded in having the mortgage set aside and nearly $2 million ordered to be repaid to the company in liquidation—despite Runtong not receiving the loan proceeds and despite no wrongdoing by the mortgagee. That decision triggered widespread alarm in the lending and insolvency community. Leading commentators warned that the ruling at first instance destabilised the use of cross-company securities, expanded s 588FDA beyond its intended scope, and introduced serious uncertainty into secured lending practices.
The Full Federal Court (Cheeseman, Goodman and McEvoy JJ) unanimously allowed the appeal.
The Court held that, even if a benefit to directors could be identified, the liquidator failed to discharge the onus of proving that the transaction was objectively unreasonable in the circumstances of the company. The Full Court’s reasoning provides much-needed clarity on the evidentiary burden under s 588FDA(1)(c) and significantly recalibrates the approach to determining when a transaction should be set aside as “unreasonable” in a director-related context. This is now the leading appellate authority on the proper construction and application of s 588FDA. It restores commercial certainty and narrows the reach of the first instance decision, which had threatened to unsettle long-standing financing structures.
Farid Assaf SC of Banco Chambers and Alex Lazarevich of the Adelaide Bar appeared for the successful appellant, instructed by Ronayne Owens Lawyers.