Director Self-Dealing in a Closely-Held Company: When a $2 Sale of the Operating Business Triggers Fiduciary Liability, Statutory Breach, and a Constructive Trust

Introduction
Based on the authentic Australian judicial case Sorak Thai Pty Ltd v Sopharak [2025] NSWSC 753, this article disassembles the Court’s judgment process regarding evidence and law. It transforms complex judicial reasoning into clear, understandable key point analyses, helping readers identify the core of the dispute, understand the judgment logic, make more rational litigation choices, and providing case resources for practical research to readers of all backgrounds. :contentReference[oaicite:0]{index=0}

Chapter 1: Case Overview and Core Disputes

Basic Information

Court of Hearing: Supreme Court of New South Wales
Presiding Judge: Richmond J
Cause of Action: Equity and Corporations Law claims concerning director duties and third-party liability for receipt of property transferred in breach of duty
Judgment Date: 15 July 2025
Core Keywords:
Keyword 1: Authentic Judgment Case
Keyword 2: Director self-dealing
Keyword 3: Fiduciary duties and conflict rule
Keyword 4: Corporations Act 2001 (Cth) ss 180–182 and s 1318
Keyword 5: Alter ego company and Barnes v Addy knowing receipt
Keyword 6: Constructive trust as restorative remedy

Background

A closely-held company operated a Thai restaurant business from leased premises in Newcastle. The company had two shareholders: a majority shareholder who funded the business and a minority shareholder who also managed the restaurant day-to-day and served as the sole director. After the relationship between the shareholders deteriorated, the sole director caused the company to sell the entire operating business, including the benefit of the lease, to a second company that she wholly owned and controlled. The sale price was AUD $2, split as AUD $1 for goodwill and AUD $1 for equipment. The company was left behind with significant Australian Taxation Office liabilities. The dispute required the Court to decide whether the director had prioritised her personal interest over the company’s interests, and what equity and statutory remedies should follow.

Core Disputes and Claims

Core legal focus question:
Whether a sole director breaches fiduciary and statutory duties by transferring the company’s operating business and lease to her wholly-owned company for nominal consideration without informed shareholder consent or arm’s length value, thereby leaving the company unable to meet substantial taxation liabilities, and whether the recipient company holds the business on constructive trust.

Plaintiff’s core claims and relief sought:
1. Declarations that the First Defendant breached fiduciary duties and contravened Corporations Act 2001 (Cth) ss 180, 181, 182.
2. Declarations that the Second Defendant was liable as a participant or recipient of property transferred in breach of duty, including under the principles associated with Barnes v Addy.
3. Rescission of the sale contract and injunctive orders restoring the business and lease to the Plaintiff.
4. An account of profits for the period after the transfer.

Defendants’ core position:
1. The business was loss-making and had negative net assets, so the transaction was said to be commercially justified.
2. The company constitution was said to permit a director to contract with the company and thereby prevent the transaction being set aside.
3. If there were a breach, the First Defendant sought relief from liability under s 1318 of the Corporations Act 2001 (Cth) on the basis she acted honestly and ought fairly be excused.

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Chapter 2: Origin of the Case

The story begins as many hospitality disputes do: with a business built on long hours, trust, and informal arrangements that later become the fuel for formal litigation.

The business was originally acquired and operated through an earlier company, funded by shareholder loans reflecting shareholdings. Over time, the majority shareholder bought out the other shareholder and became the sole controller of that earlier entity. The restaurant continued under a lease, and the majority shareholder remained financially exposed by providing a personal guarantee.

Years later, the First Defendant was hired into the business and later took on an operationally central role. A handwritten agreement was then reached between the majority shareholder and the First Defendant. It contemplated a management-style arrangement under which the First Defendant paid a weekly amount to the majority shareholder and paid the operating outgoings, while keeping operating profits during a defined period. It also contemplated a later formal agreement that never eventuated.

The pandemic disrupted turnover and cashflow. In response, the parties renegotiated in messaging exchanges and decided to incorporate a new company to take over operations, with the majority shareholder holding 75% and the First Defendant holding 25%. The First Defendant became the sole director. The lease arrangements were renewed, with both individuals providing personal guarantees.

Over time, however, the informal, trust-based system eroded. Negotiations about the First Defendant buying out the majority shareholder’s shares reached an impasse. Each side had a different view of value, and the First Defendant’s communications through her solicitor asserted an agreement that the Court later found did not exist in the terms alleged.

As the relationship broke down, a critical escalation occurred: the First Defendant incorporated a separate company wholly owned by her. She registered business names associated with the restaurant. Then, while still sole director of the Plaintiff company, she executed minutes resolving that the Plaintiff would sell the entire restaurant business to her own new company for AUD $2 and completed the sale. The majority shareholder was not told beforehand and only learned of the transaction later when records were provided.

The litigation was the legal consequence of that real-world deterioration: when business partners stop speaking, the paperwork starts speaking for them, and courts are asked to decide whether the paperwork is a genuine solution or a vehicle for private advantage.

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Chapter 3: Key Evidence and Core Disputes

Applicant’s Main Evidence and Arguments

1. Affidavit evidence from the Plaintiff’s director describing:
   • The original funding and ownership structure.
   • The operational role of the First Defendant.
   • The informal handwritten agreement and subsequent messaging communications during the pandemic.
   • The absence of any agreement requiring transfer of shares for a fixed sum in the way later alleged by the First Defendant.
2. Accountant evidence addressing the company’s financial position, including:
   • Financial statements annexed to the sale contract showing losses and a significant ATO liability.
   • Book values of assets, including cash on hand and plant and equipment.
   • Later figures indicating ongoing ATO liabilities and payment arrangements.
3. Solicitor affidavit addressing procedural steps and documentary communications, including:
   • The solicitor letter asserting a disputed agreement.
   • Meeting notices and events bearing on shareholder control.

Plaintiff’s core legal argument:
The First Defendant used her position to transfer the company’s operating business to herself in substance by selling it to her wholly-owned vehicle, without informed shareholder consent, without market testing, and without any valuation. The sale price was nominal and inconsistent with the value of assets and the reality that the transaction stripped the company of its revenue-generating engine while leaving behind the ATO liability. Equity and statute both prohibit that conduct.

Respondent’s Main Evidence and Arguments

1. Two affidavits from the First Defendant contending:
   • The business was loss-making and had negative net assets.
   • The transaction was a rational response to shareholder deadlock and perceived insolvency risk.
   • She believed she could make the restaurant profitable if operated without the majority shareholder’s involvement.
   • The constitution provisions concerning conflicts of interest supported the transaction.
2. Cross-examination of the First Defendant exploring:
   • Her lack of valuation, lack of independent advice, and lack of market testing.
   • Her failure to disclose the sale to the majority shareholder before completion.
   • The drafting and origin of the corporate minutes and sale documents, and inconsistencies in her explanations.

Defendants’ core legal argument:
The director exercised business judgment in difficult circumstances. Any breach was not dishonest and should be excused under s 1318. The constitution reduced the operation of general law fiduciary restrictions.

Core Dispute Points

1. Value and process: Could a reasonable director sell the operating business for AUD $2 without valuation, independent advice, or market testing?
2. Conflict and purpose: Did the director’s personal interest in acquiring 100% control of the business drive the decision?
3. Disclosure and consent: Was informed shareholder consent required, particularly in a single-director proprietary company?
4. Creditor interests: In circumstances of significant ATO debt, did the director have to take creditor interests into account when stripping the company of its business?
5. Remedy: If there was wrongdoing, is a constructive trust restoring the business the appropriate remedy, rather than merely damages or an account of profits?

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Chapter 4: Statements in Affidavits

Affidavits are not merely a record of facts. They are the architecture of persuasion. Each side chooses which events to spotlight, which to minimise, and which to frame as the decisive turning point.

The Plaintiff’s affidavit case adopted a documentary-anchored approach: it tied key propositions to objectively verifiable records such as the handwritten agreement, messaging communications, company incorporation details, lease documentation, meeting notices, the minutes authorising the sale, and the sale contract annexures showing financial statements and liabilities. That method matters because in fiduciary disputes the Court is often less interested in broad assertions of belief and more interested in whether the director’s conduct can be objectively justified.

The First Defendant’s affidavits relied heavily on narrative justification: the relationship breakdown, fear of insolvency, distraction from business growth, and a stated belief that profitability required operation without the majority shareholder’s involvement. In isolation, those themes can sound compelling to lay readers because they resemble real life: businesses do fail, relationships do break down, and people do take decisive action to save a livelihood. But in court, those themes must be matched to concrete conduct that satisfies legal duties.

A key comparative point is how each side described the same fact: the company’s negative net asset position. The First Defendant treated negative net assets as a reason the business could be sold for nominal value. The Plaintiff treated it as a reason the company needed the business to survive, because the business was the only realistic pathway to pay the ATO and stabilise the company. The Court ultimately treated the negative net asset argument as incomplete because it ignored that the sale transferred assets and revenue potential out of the company while leaving the liabilities behind.

Strategic intent behind procedural directions regarding affidavits:
In disputes where one side is self-represented and the other is legally represented, a judge’s procedural management often focuses on ensuring that documentary evidence is properly put on, issues are narrowed, and cross-examination is confined to matters truly in contest. Here, the structure of evidence meant the Plaintiff’s witnesses were not cross-examined, while the First Defendant was cross-examined on the key credibility and process issues that sat at the heart of fiduciary conflict and improper purpose.

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Chapter 5: Court Orders

Before final determination, the matter required procedural arrangements typical of Equity Division litigation involving corporate and fiduciary claims:

1. Directions for filing and service of affidavits and annexures, including financial statements, communications, and company documents.
2. Orders listing the matter for final hearing and setting the hearing dates.
3. Case management steps to ensure documentary evidence was properly tendered and organised.
4. Final post-judgment directions requiring short minutes of order to be brought in to give effect to the judgment and deal with costs and relief mechanics.

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Chapter 6: Hearing Scene: Ultimate Showdown of Evidence and Logic

The hearing did not resemble a dramatic courtroom confrontation where both sides barrage each other’s witnesses. It was more surgical. The Plaintiff’s affidavit evidence went largely unchallenged because the Plaintiff’s witnesses were not cross-examined. The decisive contest therefore centred on the First Defendant’s evidence and the objective documents she could not escape.

Process Reconstruction: Live Restoration

Cross-examination drilled into the gap between justification and method.

First, the First Defendant accepted she sold the business for AUD $2 without obtaining a valuation, without consulting the company’s accountant for a market assessment, and without testing whether any third party would pay more. In fiduciary disputes, this is a recurring fault line: a director may sincerely claim they acted to solve a problem, but the Court asks whether the director used reasonable safeguards before committing the company to a transaction where the director has a personal stake.

Second, the First Defendant accepted she did not tell the majority shareholder about the sale before completion. That omission mattered because the company had two shareholders and the director’s interest was in direct conflict with the company’s interest in maximising value and preserving assets to meet liabilities. Secrecy in a conflict transaction is rarely neutral; it is typically a sign that the director is not seeking informed consent.

Third, the hearing explored inconsistencies in the First Defendant’s explanations about the origin of the minutes. The Court treated her evidence on this aspect as unsatisfactory and inferred that her solicitor likely drafted the documents. This was not a mere side issue. The minutes asserted that the company had not sought legal advice and framed the sale as a premium to value. If the Court doubted the authenticity and reliability of that narrative, it weakened the foundation for a business judgment defence and for any claim to honest conduct under s 1318.

Core Evidence Confrontation

The decisive evidence confrontation was between the sale price and the documentary indicators of value and consequence:

1. The sale contract annexed financial statements that recorded assets far exceeding AUD $2, including cash on hand and fixed assets.
2. The minutes acknowledged losses and liabilities but failed to explain why the purchaser did not assume business-incurred liabilities such as GST and PAYG obligations.
3. The transaction left the company exposed to significant ATO debt while removing the revenue-generating business that could service that debt.
4. Bank account transactions on the completion day included unexplained movements that reduced the company’s bank balance to minimal funds.

In plain terms: if the company was a boat taking on water, the director sold the engine to her own garage for AUD $2 and left the creditors with the sinking hull.

Judicial Reasoning

The Court’s reasoning was anchored in classic fiduciary logic: conflict, profit, disclosure, and informed consent, then reinforced by statutory duties of good faith and proper purpose under s 181.

“There was a real or substantial possibility of conflict between her personal interest … and the interests of the Company.”

This was determinative because once the Court identified a real conflict in a self-dealing sale, the director’s conduct had to satisfy strict safeguards: full disclosure and fully informed consent, plus a transaction that could be justified as truly in the company’s interests. The evidentiary gaps on valuation, market testing, and disclosure made that justification impossible.

The Court then connected conflict to outcome: the sale price, the lack of independent process, and the leaving behind of liabilities meant the director’s personal interest had prevailed over the company’s interest.

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Chapter 7: Final Judgment of the Court

The Court determined that:

1. The Plaintiff succeeded in its claim that the First Defendant breached fiduciary duty by authorising and implementing the sale of the business to the Second Defendant.
2. The Second Defendant held the business on constructive trust for the Plaintiff, reflecting its position as the alter ego vehicle used to receive the benefit of the breach.
3. The Plaintiff succeeded in its alternative statutory claim that the First Defendant breached s 181 of the Corporations Act 2001 (Cth), and the Second Defendant was accessorially liable under s 181(2).
4. The First Defendant failed in her application for relief from liability under s 1318.
5. The Plaintiff was entitled to costs.
6. The parties were directed to bring in short minutes of order within 14 days to give effect to the judgment and address the final form of relief.

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Chapter 8: In-depth Analysis of the Judgment: How Law and Evidence Lay the Foundation for Victory

Special Analysis

This judgment is valuable because it shows how courts respond when a director attempts to solve a shareholder deadlock by moving the business to a new vehicle that the director wholly controls. The Court did not treat the director’s personal narrative of frustration as a legal justification. Instead, it treated process, disclosure, and value as the critical pillars.

It also demonstrates an important reality in small companies: constitutional conflict provisions do not give a director a free pass to self-deal. Even if a constitution allows a director to contract with the company, the director must strictly comply with any conditions, and where there is a single director, the practical safeguard often shifts to shareholder disclosure and fully informed consent.

Finally, the Court’s preference for a constructive trust remedy illustrates a restorative equity instinct: where the asset can be returned and monetary relief would not do justice, equity will often choose restoration over calculation.

Judgment Points

1. A self-dealing director transaction is judged by objective safeguards, not merely asserted belief.
2. Negative net assets do not automatically justify a nominal price when assets and revenue potential are being transferred out of the company.
3. A director cannot rely on internal minutes to validate a conflict transaction if shareholders were not told and did not consent.
4. In near-insolvency settings, creditor interests, including the ATO’s position, must be taken into account, particularly when the director’s act strips the company of the ability to meet liabilities.
5. Where a recipient company is the director’s alter ego, equity can treat it as fully accountable and impose a constructive trust.

Legal Basis

Key statutory provisions referred to in the reasoning included:

1. Corporations Act 2001 (Cth) s 181: duty to act in good faith in the best interests of the corporation and for a proper purpose.
2. Corporations Act 2001 (Cth) ss 180 and 182: care and diligence, and improper use of position, as the broader statutory framework for director conduct in conflict circumstances.
3. Corporations Act 2001 (Cth) s 1318: discretionary relief from liability, requiring proof of honest conduct and fairness to excuse.
4. Principles of fiduciary duty at general law and in equity: conflict rule and profit rule.
5. Barnes v Addy and its modern elaboration: third-party liability and constructive trust mechanisms where property is received through fiduciary breach.

Evidence Chain

Victory Point 1: The conflict was structural and obvious, and the Court treated it as legally decisive.
Conclusion = Existence of conflict + director’s dual role + outcome benefiting director
Evidence: The First Defendant was sole director of the seller and sole shareholder and director of the purchaser company. The sale moved the business from a company in which she held 25% to one she wholly owned. That alignment created an inherent incentive to minimise price and maximise personal benefit.

Victory Point 2: The sale price was irreconcilable with basic indicators of value and commercial prudence.
Conclusion = Breach of duty + lack of arm’s length value
Evidence: The business assets recorded in financial statements annexed to the sale contract substantially exceeded AUD $2, including cash and fixed assets. Even if the business was loss-making, a prudent director acting for the company would ordinarily obtain a valuation or at least independent advice and test the market before disposing of the company’s primary asset.

Victory Point 3: The transaction design left liabilities behind, amplifying detriment to the company and creditors.
Conclusion = Improper purpose and not in best interests
Evidence: The company had substantial ATO liabilities accrued in the conduct of the business. The sale did not shift those liabilities to the purchaser. The company lost its business and lease and was left with the ATO burden without the business revenue to service it.

Victory Point 4: Secrecy destroyed any claim of informed consent and undermined the constitution reliance.
Conclusion = Constitution did not protect the director; transaction remained voidable and wrongful
Evidence: The majority shareholder was not told of the sale before completion. In a single-director company, statutory director-to-director disclosure has limited utility, so the general law emphasis shifts to shareholder disclosure and fully informed consent.

Victory Point 5: The Court rejected the attempt to frame the sale as a business judgment in the company’s interests.
Conclusion = s 181 breach
Evidence: The director’s stated belief that the restaurant could be profitable under her management cut against the logic that the business was worth only AUD $2. If the director truly believed the business had profitable potential, it strengthened the inference that she acquired it for herself at an undervalue rather than acting for the company’s best interests.

Victory Point 6: Credibility issues in the director’s evidence weakened any foundation for discretionary relief.
Conclusion = s 1318 relief refused
Evidence: The Court found aspects of the First Defendant’s evidence about document preparation unsatisfactory and inferred solicitor involvement. That, together with the overall pattern of non-disclosure and self-benefit, led the Court to conclude she did not act honestly for the purposes of s 1318.

Victory Point 7: The Second Defendant’s alter ego character enabled full equitable accountability.
Conclusion = Constructive trust imposed on recipient company
Evidence: The Second Defendant was wholly owned and controlled by the First Defendant. Equity treated it as the vehicle used to secure the benefit of the breach. This supported constructive trust relief and restoration of the business.

Victory Point 8: Remedy selection reflected practical justice, not theoretical purity.
Conclusion = Restorative relief preferred over profit accounting
Evidence: The Court indicated an account of profits or equitable compensation would be unlikely to do justice given evidence about financial performance, and foreshadowed that constructive trust and return of the business was the appropriate restorative course, subject to further submissions on final orders.

Judicial Original Quotation

“It was not appropriate … to sell the Business … for $2 absent at the very least a valuation or other independent financial advice.”

This statement mattered because it shows the Court’s practical benchmark: in a conflict transaction, a director must erect objective safeguards. Without valuation, independent advice, or market testing, the director could not prove the transaction was genuinely in the company’s interests.

“Notice of the sale transaction was not given to all the shareholders.”

This was determinative because the legal system treats informed consent as the cleansing mechanism for many fiduciary conflicts. Without disclosure and consent, the conflict remains legally toxic, and constitutional clauses cannot be used as a blanket shield.

Analysis of the Losing Party’s Failure

The losing party failed for reasons that are common and avoidable in small-company disputes:

1. The director treated operational frustration as a substitute for fiduciary compliance. Courts accept that relationships deteriorate, but they do not accept that this permits a director to re-allocate company property to themselves at nominal value.
2. The director failed to build an evidentiary foundation for fairness. No valuation, no independent advice, no market testing, and no contemporaneous disclosure meant the director could not prove that the transaction was reasonable or in the company’s interests.
3. The director’s narrative contained internal contradictions. Claiming the business was worth only AUD $2 while also claiming it could be made profitable under her management undermined credibility and supported an inference of private advantage.
4. The director disregarded the creditor dimension. Stripping the company of the business while leaving significant ATO liabilities behind created a strong appearance of prejudice to creditors and detriment to the company.
5. The director’s reliance on constitutional provisions was incomplete. Even where constitutions allow directors to contract with the company, strict compliance with disclosure conditions and the general law requirement of informed consent remains central, especially in single-director companies.

Reference to Comparable Authorities

1. Barnes v Addy (1874) LR 9 Ch App 244
   Ratio summary: Third parties may be accountable in equity when they receive trust or fiduciary property with sufficient knowledge or participate in the breach, supporting constructive trust remedies in appropriate circumstances.
2. Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6
   Ratio summary: Modern articulation of third-party liability principles, including situations where a corporate vehicle is used as the fiduciary’s alter ego to obtain profits from a breach, supporting full accountability and constructive trust consequences.
3. Woolworths Ltd v Kelly (1991) 22 NSWLR 189
   Ratio summary: In conflict transactions, full disclosure to members and approval by ordinary resolution are central cleansing mechanisms at general law unless constitution provisions validly displace them and strict compliance is shown.

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Implications

1. If you run a business through a company, remember the company is not you. Even if you are the manager and the driving force, the company’s assets must be treated as belonging to the company, not as a personal backup plan when relationships break down.
2. When you have a conflict of interest, sunlight is not optional. Disclosure to the other shareholders, and genuine informed consent, is usually the difference between a lawful solution and a legal disaster.
3. A low sale price is not automatically wrong, but it is a relatively high risk decision when you sell to yourself. Valuations, market testing, and independent advice are not paperwork burdens; they are protective armour.
4. Tax debts do not disappear just because the business moves. If a transaction leaves a company with liabilities but without the business that generated them, courts tend to view that as a red flag for improper purpose and unfairness.
5. If you are negotiating a buyout, avoid the temptation to take shortcuts. A clean exit is built through documented agreement and lawful process, not through unilateral transfers that create long, expensive litigation.

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Q&A Session

Q1: Why did the Court treat the AUD $2 price as such a problem if the company was making losses?
A: Because losses do not automatically mean the business has no value. The evidence showed the company had assets, including cash and equipment, and the business had revenue potential. The key issue was not merely the number on the contract, but the lack of valuation, independent advice, and market testing in a self-dealing sale.

Q2: Could the director have lawfully bought the business if she truly wanted to continue operating it?
A: Potentially, yes, but the route would ordinarily require robust safeguards: full disclosure to shareholders, informed consent, independent valuation, an arm’s length process or genuine market testing, and a transaction structure that fairly addresses liabilities and creditor interests.

Q3: Why did the Court impose a constructive trust rather than simply awarding money?
A: The Court treated restoration as the most practical justice. Where a fiduciary breach involves transfer of a discrete business asset to an alter ego vehicle, and monetary remedies may not adequately capture fairness in context, equity often prefers to order the asset returned, subject to the final mechanics of orders.

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Appendix: Reference for Comparable Case Judgments and Practical Guidelines

1. Practical Positioning of This Case

Case Subtype: Closely-Held Company Dispute – Director Self-Dealing Sale of Business Assets – Fiduciary Duties, Corporations Act Duties, and Constructive Trust Relief
Judgment Nature Definition: Final Judgment

2. Self-examination of Core Statutory Elements

[Execution Instruction Applied]: This case belongs to Category ④ Commercial Law and Corporate Law. The following core test standards are provided as general guidance only. Outcomes tend to be determined by the specific facts, documents, and credibility findings in each matter.

Core Test: Contract Formation

1. Offer
   You must identify whether one party made a clear proposal capable of acceptance, with sufficiently certain terms such as subject matter, price or pricing mechanism, and timing.
2. Acceptance
   You must identify whether the other party communicated unqualified assent to the offer, within any required timeframe. Silence rarely constitutes acceptance unless the circumstances objectively support it.
3. Consideration
   You must identify whether something of value moved from the promisee. Even nominal consideration can be sufficient at law, but in equity and fiduciary settings nominal consideration may carry relatively high risk where it masks unfairness, conflict, or lack of informed consent.
4. Intention to Create Legal Relations
   You must identify whether the parties objectively intended the agreement to be legally binding. In commercial contexts, intention is usually presumed, but informal arrangements can create disputes about whether obligations were intended to be enforceable or were conditional on later formal documentation.

Core Test: Section 18 of the Australian Consumer Law

1. In trade or commerce

You must identify whether the conduct occurred in a commercial context. Directors and companies dealing with business assets will often satisfy this element.

2. Conduct that is misleading or deceptive or likely to mislead or deceive

You must identify the representation or conduct and the target audience, then assess whether it tends to lead into error. In corporate disputes, this can arise where one party asserts an agreement, value, or entitlement that is inconsistent with documents or surrounding circumstances.

3. Causation and reliance

You must identify whether the misleading conduct induced action or inaction that caused loss. This often requires evidence of what decision was made because of the representation.

4. Loss or damage

You must identify the nature of loss and the statutory remedies sought. Even where s 18 issues arise, remedies may overlap with equitable relief, but courts tend to scrutinise the true source of loss.

Core Test: Unconscionable Conduct

1. Existence of special disadvantage

You must identify whether one party suffered a condition or circumstance that seriously affected their ability to make judgments in their own interests, such as language limitations, lack of education, emotional dependence, urgent financial need, or informational asymmetry.

2. Knowledge and exploitation

You must identify whether the other party knew or ought to have known of the disadvantage and took advantage in a way that equity regards as against good conscience.

3. Transactional unfairness and absence of meaningful choice

You must identify whether the transaction was substantially one-sided, whether proper advice was absent, and whether the disadvantaged party had a real ability to negotiate or refuse.

4. Relief

Relief can include rescission, variation, or equitable compensation, but outcomes tend to depend on the intensity of the disadvantage and the quality of evidence about exploitation.

3. Equitable Remedies and Alternative Claims

[Execution Instruction Applied]: Even where statutory claims are available, parties in commercial and corporate disputes often consider equitable and common law counter-paths. The following are general options that may be feasible depending on facts.

Promissory or Proprietary Estoppel

1. Clear and unequivocal promise or representation

You must identify whether the other party made a sufficiently clear assurance about ownership, transfer of shares, entitlement to profits, or continued control of the business.

2. Detrimental reliance

You must identify whether you changed position because of the promise, such as investing money, undertaking renovations, expanding staff, or giving up alternative employment or business opportunities.

3. Unconscionability in resiling

You must identify why it would be against conscience for the promisor to withdraw, considering the reliance and the fairness of enforcing the expectation.

4. Likely outcome

Equitable relief may restrain the promisor from departing from the representation or may award relief designed to avoid detriment, but the scope tends to be shaped by proportionality and evidentiary clarity.

Unjust Enrichment and Constructive Trust

1. Benefit received at your expense

You must identify the benefit the other party received, such as transfer of a business, lease rights, goodwill, cash, or labour value.

2. Unjust factor

You must identify why retention is against conscience, such as breach of fiduciary duty, mistake, failure of basis, or exploitation of position.

3. Appropriate remedy

Restitution may be ordered, or a constructive trust may be declared to reflect beneficial ownership, particularly where identifiable property was transferred in circumstances of breach.

4. Practical warning

Constructive trust relief tends to be fact-intensive and may be more available where the recipient is an alter ego vehicle or where tracing of assets is straightforward.

Procedural Fairness

In commercial and corporate disputes, procedural fairness issues more commonly arise in administrative decisions, but similar fairness themes can appear in company governance:

1. Opportunity to be heard

You must identify whether a shareholder or director was denied a genuine opportunity to respond before a drastic step was taken, such as asset disposal or exclusion from management.

2. Bias and conflict

You must identify whether a decision-maker was conflicted and whether the process mitigated that conflict through disclosure, consent, or independent decision structures.

3. Practical utility

Although not identical to judicial review, fairness failures in governance often strengthen equitable arguments about breach of duty and improper purpose.

4. Access Thresholds and Exceptional Circumstances

[Execution Instruction Applied]: Identify hard thresholds and exceptional exemptions. These are general guidance only.

Regular Thresholds

1. Authority and governance thresholds
   A director must act within powers under the Corporations Act and the constitution. However, where a director has a material conflict, reliance on bare power tends to carry relatively high risk if informed consent safeguards are absent.
2. Disclosure and consent thresholds
   In conflict transactions, full disclosure and fully informed consent are often decisive. In single-director companies, the functional safeguard typically shifts to disclosure to shareholders because there is no independent board check.
3. Insolvency and creditor-interest thresholds
   Where there is a real and not remote risk of prejudice to creditors, directors tend to be required to take creditor interests into account. Transactions stripping revenue-generating assets while leaving liabilities tend to be heavily scrutinised.
4. Limitation and procedural thresholds
   Civil proceedings are subject to limitation periods and procedural compliance. Delay can create evidentiary deterioration and may increase litigation risk even where a claim is otherwise strong.

Exceptional Channels

1. Constitutional modification
   A constitution can modify aspects of fiduciary restrictions, but directors must strictly comply with any disclosure conditions, and courts tend to interpret conflict-cleansing clauses cautiously.
2. Discretionary relief under s 1318
   A director may seek relief if they acted honestly and ought fairly be excused. Relief tends to be harder to obtain where there is personal benefit, concealment, significant detriment to the company, or serious departure from reasonable safeguards.

Suggestion

Do not abandon a potential claim simply because the transaction was documented or purportedly authorised by internal minutes. Carefully compare your circumstances against disclosure, consent, valuation process, and creditor-impact factors. These elements are often the key to successfully establishing breach or defending against it.

5. Guidelines for Judicial and Legal Citation

Citation Angle

It is recommended to cite this case in legal submissions or debates involving director conflict transactions, self-dealing asset transfers, shareholder consent requirements in single-director companies, and remedial choice between constructive trust and monetary relief.

Citation Method

As Positive Support: When your matter involves a director transferring key business assets to an entity they control without valuation, market testing, or informed consent, citing this authority can strengthen an argument that fiduciary and statutory duties were breached and that restorative equitable relief is appropriate.
As a Distinguishing Reference: If the opposing party cites this case, you should emphasise uniqueness such as genuine independent valuation, full shareholder disclosure, arm’s length market testing, fair assumption of liabilities, or independent governance approval mechanisms that reduce conflict risk.

Anonymisation Rule

In discussing this authority in practical communications, do not use party names. Use Plaintiff, First Defendant, and Second Defendant to focus attention on roles and duties rather than personal identities.

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Conclusion

This judgment distils a hard lesson for closely-held companies: when a director with a personal stake transfers the business to their own vehicle, courts tend to demand transparency, independent value safeguards, and genuine consent, not just a story of frustration.

Golden Sentence
Everyone needs to understand the law and see the world through the lens of law: true self-protection stems from the early understanding and mastery of legal rules.

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Disclaimer

This article is based on the study and analysis of the public judgment of the Federal Circuit and Family Court of Australia (Sorak Thai Pty Ltd v Sopharak [2025] NSWSC 753), aimed at promoting legal research and public understanding. The citation of relevant judgment content is limited to the scope of fair dealing for the purposes of legal research, comment, and information sharing.

The analysis, structural arrangement, and expression of views contained in this article are the original content of the author, and the copyright belongs to the author and this platform. This article does not constitute legal advice, nor should it be regarded as legal advice for any specific situation.

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