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Can a liquidator use section 588FDA of the Corporations Act 2001 (Cth) to claw back money that flowed from a company to a related company, and then from that related company to a director’s relative? The Full Federal Court in Yang v Wong [2026] FCAFC 39 has answered that question clearly: no.
This decision narrows the scope of s 588FDA in a way that has real consequences for liquidators, directors, and creditors. If you are facing a voidable transaction claim — or prosecuting one — understanding what s 588FDA can and cannot reach is now more important than ever.
This post examines the decision, unpacks what it means in practice, and explains why the result does not give directors a free pass to route funds through related entities.
Background: What Is Section 588FDA?
Section 588FDA of the Corporations Act 2001 (Cth) provides that a transaction is an unreasonable director-related transaction if it involves a payment, disposition of property, issue of securities, or incurring of an obligation:
- Made to a director of the company, or a close associate of a director; and
- Where a reasonable person in the company’s position would not have entered into the transaction, having regard to the benefits and detriments to the company and the respective benefits to other parties.
The critical feature that distinguishes s 588FDA from other voidable transaction provisions is that it does not require the company to have been insolvent at the time of the transaction. This makes it a powerful tool for liquidators — they can attack transactions that benefited directors or their associates even if the company was solvent when the payments were made.
If established, the Court can void the transaction and order recovery of the payment for the benefit of creditors generally.
The Facts in Yang v Wong [2026] FCAFC 39
The case concerned Axis North Pty Ltd (in liquidation). The factual structure was as follows:
- Company A (Axis North, the company in liquidation) made a payment to Company B (a related company).
- Company B then used those funds to repay a loan owed to the respondent — a relative of a director of Company A, and therefore a “close associate” of a director for the purposes of s 588FDA.
The liquidator argued this two-step structure should be treated as a payment “to” the relative under s 588FDA. The logic was commercially sensible: the relative was the ultimate economic beneficiary of Company A’s funds, and the intermediate step through Company B was simply a mechanism to deliver value to the relative.
The Full Federal Court rejected that argument.
The Full Federal Court’s Decision
The Court held that the payment made by Company A was “to” Company B — not to the relative. The relative received a repayment of a loan from Company B. That was a separate transaction, between different parties, with its own legal character. The fact that Company B’s repayment was economically funded by Company A’s payment did not transform Company A’s payment into a payment “to” the relative.
The Court confirmed a narrow, textual construction of s 588FDA: the section requires a direct payment from the company to a director or close associate. An interposed entity breaks that direct connection. Where a benefit to an associate arises from a separate transaction between the interposed entity and the associate — not from a payment directly by the insolvent company — s 588FDA does not apply.
The Court also dismissed grounds of appeal that sought to raise matters not pleaded at first instance, finding that allowing this would cause prejudice to the respondent who had had no opportunity to address those matters at trial.
What Liquidators Must Do Instead: Section 588FB
The decision does not leave liquidators without a remedy. It means they must use the right provision.
Where funds flow through an interposed entity before reaching a director’s associate, the correct tool is section 588FB — uncommercial transactions. Section 588FB applies to any transaction where a reasonable person in the company’s position would not have entered into it, having regard to:
- The benefits (if any) and detriment to the company;
- The respective benefits to other parties to the transaction; and
- Any other relevant matter.
The significant difference is that s 588FB requires proof of insolvency at the time of the transaction (or that the company became insolvent because of it). Section 588FDA does not carry this requirement. This makes s 588FB a harder ground to establish — but after Yang v Wong, it is the correct vehicle when payments are routed through interposed entities.
Liquidators who plead only s 588FDA for indirect payment flows — without also pleading s 588FB — may find their claims fail at the threshold. A properly structured claim should consider both provisions from the outset, particularly when the facts involve related-company payment chains.
Practical Implications for Directors
Directors should not read Yang v Wong as a structuring guide. The case confirms a technical limit to s 588FDA — it does not confirm that routing payments through a related company eliminates clawback risk.
The practical reality is straightforward: a liquidator who understands this decision will plead s 588FB, not s 588FDA, when attacking indirect payment flows. The test under s 588FB is broader in some respects — it is not limited to directors and their associates, and it can capture any transaction that no reasonable person in the company’s position would have entered into.
For directors facing a liquidator’s claim involving transactions with related entities, the key questions are:
- Was the company insolvent at the time of the transactions? (s 588FB requires this; s 588FDA does not)
- Were the transactions genuinely commercial, or can a liquidator characterise them as arrangements designed to extract value?
- Were the transactions adequately documented with proper board authorisation and a genuine commercial rationale?
Documentation is critical. A commercial rationale that is well-documented and supported by contemporaneous board minutes is substantially harder for a liquidator to attack than a transaction that appears on its face to have no commercial benefit for the insolvent company.
If a liquidator has commenced proceedings — or sent a demand letter threatening proceedings — directors should obtain legal advice immediately. The specific provisions pleaded determine the available defences, and the strategic choices made early in a dispute can significantly affect the outcome.
Practical Implications for Creditors
Unsecured creditors waiting for distributions from a liquidation should understand that the strength of a liquidator’s recovery claims is not determined by economic common sense alone. It is determined by which voidable transaction provisions are properly pleaded and whether the facts support them.
After Yang v Wong, creditors should ensure that liquidators acting in their interests are across this decision. A liquidator who pleads only s 588FDA for an indirect payment chain is exposed to a successful argument at the threshold — and that could mean funds the liquidator expected to recover remain beyond reach.
How Yang v Wong Fits Into the Broader s 588FDA Landscape
This decision follows the Full Federal Court’s earlier treatment of s 588FDA in CEG Direct Securities Pty Ltd v Cooper (as liquidator) [2025] FCAFC 47, which confirmed the broad availability of the provision where payments are made directly to directors or associates. The High Court refused special leave to appeal that earlier decision.
Yang v Wong is the logical complement: where CEG Direct Securities confirmed the reach of s 588FDA in direct payment cases, Yang v Wong defines its limits in indirect payment cases. Together, the decisions map the boundaries of the provision with considerable clarity.
For a broader overview of voidable transaction recovery by liquidators, see our guide: A Guide to Recovery of Director-Related Payments by Liquidators. If you are a director who has received a claim from a liquidator, see also: Facing a Liquidator’s Lawsuit: What Directors Need to Know About Voidable Transactions.
Frequently Asked Questions
What is section 588FDA of the Corporations Act?
Section 588FDA allows a liquidator to recover payments made directly by a company to a director or close associate of a director, where a reasonable person in the company’s position would not have entered into the transaction. Unlike most other voidable transaction provisions, s 588FDA does not require the company to have been insolvent at the time.
Does section 588FDA apply if the payment went through an interposed company?
No. Following Yang v Wong [2026] FCAFC 39, the Full Federal Court confirmed that s 588FDA requires a direct payment from the company to the director or associate. A payment to an interposed company — even if that company then pays the associate — does not satisfy this requirement. Liquidators must rely on s 588FB (uncommercial transactions) for indirect payment flows.
What is the difference between s 588FDA and s 588FB?
Section 588FDA targets direct payments to directors or associates and does not require insolvency. Section 588FB (uncommercial transactions) applies to a wider range of transactions but requires the company to have been insolvent at the relevant time. After Yang v Wong, indirect payment flows through interposed entities fall under s 588FB, not s 588FDA.
Can a liquidator still recover funds that were routed through a related company?
Potentially yes — but only if the liquidator pleads s 588FB and establishes that the underlying transactions were uncommercial and the company was insolvent at the relevant time. The pathway is harder but remains available. Directors should not assume that an interposed company structure provides complete protection from clawback claims.
What should I do if a liquidator is threatening to sue me for a voidable transaction?
Obtain legal advice immediately. The provisions pleaded by the liquidator determine the defences available to you. The analysis differs substantially between a s 588FDA claim (no insolvency required; direct payment necessary) and a s 588FB claim (insolvency required; broader transaction scope). Early advice on the strength and limits of each ground is essential.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
Contact Mark Harley at Boss Lawyers on 1300 267 711 or via bosslawyers.com.au
Mark Harley
Principal Solicitor, Boss Lawyers
Level 27, Santos Place, 32 Turbot Street, Brisbane QLD 4000
T: 1300 267 711
If you are facing an insolvency issue as a director, creditor, or business owner, Boss Lawyers can help. We regularly act in insolvency matters across Brisbane and Queensland, including voluntary administration, liquidation, and director liability claims. Contact us on 1300 267 711.
