The Western Australian Court of Appeal has recently delivered its judgment on one of the country's longest running pieces of litigation: Westpac Banking Corporation v The Bell Group (in liq) [No 3] (the Bell Appeal). The Bell Appeal decision runs at over 1,000 pages and discusses a range of issues relating to transactions conducted immediately prior to insolvency. Of particular significance for directors and financiers are the discussions relating to director's duties, knowing receipt and knowing assistance.
During the 1980s, the Bell Group obtained finance from 20 banks on an unsecured basis. The Bell Group also raised finance through a series of bond issues, the proceeds of which were on-lent to two entities within the Group. In 1990, following restructure negotiations, the Bell Group provided further security to the banks, who then proceeded to realise those securities, recovering around $382 million. Liquidators were appointed shortly after and pursued the banks to recover the funds realised.
The Supreme Court held that the directors had breached their fiduciary duties, and that the banks had received property with knowledge of such breach. The Court of Appeal went a step beyond the the Supreme Court's judgment in finding that the banks had not only knowingly received the funds, but had knowingly assisted the directors in engaging in fraudulent and dishonest conduct.
The Bell Appeal serves as a reminder for directors and financiers alike to act prudently in dealing with companies near insolvency.
See court decision here.