BLO5540 Business Law - Central Management Pty Ltd Case Study Analysis

This case study provides a summary of the Central Management (NSW) Pty Ltd [2017] NSWSC 1258 case, focusing on whether Mr. Henderson breached his duties as a director and whether he acted as a de facto director after his resignation. The court found that Mr. Henderson breached his duties before his resignation by allowing Central Management Pty Ltd to make payments on behalf of PP Hotel Investments. The court determined that a loan existed between the two companies and that Mr. Henderson's actions contravened s 180 of the Corporations Act 2001. However, the court held that Mr. Henderson was not a de facto director after his resignation. Central Management Pty Ltd was entitled to recover monies paid before Mr. Henderson's resignation, and Mr. Henderson was ordered to pay a portion of the proceedings' costs. This case clarifies the threshold for establishing de facto directorship, emphasizing that mere involvement in a company's activities is insufficient.

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Case Summary; Central Management (NSW) Pty Ltd (in liquidation) ACN 139 989 852
[2017] NSWSC 1258.
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Issues
Did Mr Henderson breach his duties as director of the Central Management Pty Ltd prior to his
resignation from the position of director on 31 December 2010?
Was Mr Henderson a de facto director of the Central Management Pty Ltd beyond 31 December
2010?
Is Central Management Pty Ltd entitled to recover monies from PP Hotel Investments and Mr
Henderson?
Facts
Mr Henderson was the director of Central Management Pty Ltd up until 31 December 2010. He
was also a director at PP Hotel Investments and a major shareholder of the latter. Prior to and
after his date of resignation, Mr Henderson permitted the payments of money by Central
Management Pty Ltd to ME Bank and Bundy Central in payment on behalf of the PP Hotel
Investments loans in satisfaction of its contractual duties to the banks.
Central Management seek to recover money from PP Hotel Investments since the loan given was
repayable on demand. The company also seeks to recover from Mr Henderson since he breached
his duties as a director under s 180 of the Corporations Act 2001.
Decision
The court held that there existed a loan between PP Hotel Investments and Central Management
Pty Ltd since loans need not be written down. The court came to this decision in considering the
principles observed in Central City Pty Ltd v Montevonto Holdings (2011).
The court found that prior to 31 December 2010, Mr Henderson acted in contravention of s 180
of the Corporations Act of 2001. His actions were also against common law principles in the
case of Re FAL Healthy Pty Ltd v FAL Retail Pty ltd (2017). Mr Henderson had a legal duty to
ensure that he acted with care and diligence to prevent risk that would affect the Central
Management company with respect to the loans it paid to the benefit of PP Hotel Investments.
Following the principles of Australian Securities and Investments Commission v Cassimants
(2016), the risk that would be faced by Central Management was reasonably foreseeable.

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The court upheld that Mr Henderson was the director of the Central Management Company up
until the 31 of December 2010 when he handed in his resignation letter. The courts position was
that after his resignation, Mr Henderson was not a de facto director of the company even though
he was involved in correspondence regarding issues affecting the company. He was also
consulted by other companies and his directives were followed. The court hesitated to declare
that Mr Henderson was a de facto director since this would have adverse effects on him. Also,
the high threshold for proving that he acted de facto as was set out in Smithton v Nagger 2010
was not met.
Following these decisions, the Central Management Pty could recover the money it paid to PP
Hotel Investments and the banks prior to 31 December 2010.
The court ordered that Mr Henderson in conjunction with PP Hotel Investments pay sixty per
cent of the costs of the proceedings for Central Management Pty Ltd.
Impact of the case
This case establishes that the simple involvement in a company’s or business’s activities and
dealings in not sufficient to prove that one is the de facto director of the business. It was held in
Re Hydro-dam (1994) as is in this case, that for one to be said to be a de facto director, one has to
undertake duties that can only be done by the director. This case reinforces the fact that a mere
involvement in the running of a company can not serve to prove that one acted in the capacity of
a de facto director.