Director duties in a restructuring: lessons from the LJ Hooker dispute

When a business is under financial pressure, decisions often need to be made quickly and with imperfect options. A common concern for directors is where a restructuring benefits some stakeholders more than others, especially where a director may also have a personal or commercial interest in the outcome.

A recent NSW Supreme Court decision involving the LJ Hooker group, one of Australia’s most recognised real estate brands, shows just how closely restructuring decisions can be scrutinised.

In the matter of Empireal Ltd (in Liq) (Receiver and Manager Apptd) [2026] NSWSC 252, it was alleged that Mr Leslie Hooker, a director and the grandson of the company’s founder, used his position to transfer control of the group’s key franchising business to entities he controlled as part of a restructuring.

This article explains how courts assess directors' decisions in a restructuring context, and why the purpose behind those decisions may be just as important as the outcome.

Background

Empireal Ltd, the holding company of the LJ Hooker Group, experienced significant financial distress in early 2020 due to high debt levels, a failed investment and the impact of COVID‑19, which made refinancing unworkable.

After attempts to secure funding or reach agreement with creditors failed, the directors placed Empireal and related entities into voluntary administration in June 2020.

A restructuring followed. Under that arrangement, an entity associated with director Mr Leslie Hooker acquired the group’s core franchising business for nominal consideration. Another major creditor did not recover any value.

The liquidators later alleged that Mr Hooker supported the appointment of administrators and the restructuring for an improper purpose, namely to obtain control of the core business free of certain creditor claims.

Mr Hooker denied this, stating that he acted in good faith and believed the companies were insolvent or likely to become insolvent.

How the Court approached the issue

The Court focused on whether Mr Hooker complied with his duty to act for a proper purpose.

It confirmed a structured approach:

• identify the power exercised

• determine the purpose for which it was used

• assess whether that purpose was proper.

Importantly, the Court emphasised that “purpose” means the outcome the director was trying to achieve, not simply why they made the decision.

Insolvency risk is a legitimate factor

A central part of the defence was that the directors were concerned about potential liability for insolvent trading.

The Court accepted this as a proper and relevant consideration. Directors are required to avoid insolvent trading, and that obligation can legitimately influence decision‑making where a company is in distress.

Here, the Court found that the risk of insolvency and further deterioration of the business formed part of the genuine commercial context in which the directors acted.

The Court’s findings

The Court ultimately rejected the claims against Mr Hooker. It was satisfied that the directors genuinely believed, on reasonable grounds, that the companies were insolvent or likely to become insolvent at the time of the decision.

It also found that:

• the stated reasons for placing the companies into administration were genuine

• Mr Hooker was not acting to obtain personal benefits

• there was no dishonest conduct in the decision‑making process.

The Court accepted that Mr Hooker did not consider he would obtain meaningful personal gain and believed the restructuring was in the best interests of the group.

Restructures involving insiders are not unusual

The decision recognises that it is not uncommon in insolvency situations for a restructuring (often through a deed of company arrangement) to involve transferring assets to a new entity, including one associated with existing stakeholders.

While this can raise concerns, the Court made clear that these arrangements are not inherently improper. Each case will turn on the specific facts and the capacity in which the individuals are acting.

No breach of duty where acting outside the director role

A key issue was whether Mr Hooker had a conflict between his duties as a director and his personal interests.

The Court found that the relevant conduct was not undertaken by Mr Hooker in his capacity as a director of Empireal. Instead, he was acting in a separate personal or commercial capacity in relation to parts of the restructuring. This distinction was critical.

Where a person is acting as a director, they must not use their position for personal gain. However, if they are acting outside that role, they may be able to pursue their own interests without breaching their duties.

The Court also noted that once the companies entered administration, the directors’ powers were restricted, further limiting the scope of any alleged conflict.

What this means for directors and businesses

The decision provides practical guidance for directors and businesses navigating distressed situations:

• The focus is on purpose, not outcome

  A restructuring will not be invalid simply because some parties are better off than others, or because a director benefits. The question is whether the director acted for a proper purpose at the time.

• Contemporaneous records matter

  Evidence of the directors’ reasoning at the time will be critical if decisions are later challenged.

• Insolvency risk can and should be considered

  Managing exposure to insolvent trading is a legitimate and relevant factor in decision‑making.

• Be clear about the role you are acting in

  Directors should distinguish carefully between actions taken in their official capacity and those taken in a personal or separate commercial capacity.

• Conflicts are not automatic breaches

  Overlapping interests do not automatically lead to a breach. The key issue is whether the director has misused their position.

Key takeaway

This case reinforces that courts take a commercial and practical approach to decisions made in times of financial stress. Directors are not expected to achieve perfect outcomes, particularly in insolvency scenarios where losses are unavoidable. What matters is whether decisions are made honestly, on a rational basis and for a proper purpose, having regard to the circumstances at the time.

If you are considering a restructuring, or are concerned about your duties as a director in a distressed business, early advice is critical. Please reach out to Christina Cavallaro or Shreya Dutt at Bartier Perry if you would like to discuss your position or the options available to you.

Authors: Christina Cavallaro & Shreya Dutt

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.