This case involved a claim under section 294 of the Companies Act 1993 by the liquidators of Five Star Finance Limited (in liquidation) (FSF) against a trustee of a trading trust (Bowden No. 14 Trust (Trust)) to set aside payments amounting to $928,937.79. These payments were part of a large number of payments, not just from FSF to the Trust, but also from the Trust to FSF.
The trustee argued that he had no knowledge of any payments made between the Trust and FSF and as such they were not authorised. However, the liquidators argued that the trustee had delegated the management of the Trust to a third party (who was also a director of FSF) and that the payments were authorised by virtue of such delegation.
The Court held that the authority to make transfers on behalf of the Trust to FSF could not be delegated by the trustee under the terms of the Trust's deed or under section 29 of the Trustee Act. As such the trustee had a proprietary claim in funds transferred from the Trust to FSF. This made the relationship one of property claimant /recipient and not debtor/creditor. In taking this view the Court held that the payments in question "went beyond payments in satisfaction of debts", but were characterised as FSF "restoring trust funds it had received". As such section 294 did not apply.
This case serves as a reminder that the characterisation of payments in a section 294 context is crucial as to whether the section will apply. This case is currently under appeal.
See court decision here