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Australia – Voidable Transactions: High Court “Vary” Unhappy With Varying An Extension Of Time, But Says Yes To Shelf Orders.

13 March, 2015

 

Legal News & Analysis – Asia Pacific – Australia –  Insolvency & Restructuring

 

What You Need To Know

 

  • The Court can extend the time for liquidators to bring voidable transaction proceedings (including unfair preferences or uncommercial transactions) only if the application to extend time is brought before the later of 3 years after the relation-back day or 12 months after the first appointment of a liquidator (588FF(3)(a) Period).

 

  • An extension of time granted during the 588FF(3)(a) Period cannot be subsequently varied by rules of Court procedure, past the 588FF(3)(a) Period, to extend the time granted in an initial extension order.

 

  • In so finding, the High Court of Australia (High Court) has emphasised the legislative policy underpinning this part of the Corporations Act 2001 (Cth) (the Act), which is to provide certainty for creditors and those who have dealt with the company in liquidation, by clearly defining the time within which voidable transaction proceedings can be commenced.

 

  • The Court has also confirmed that it is permissible for a Court to make an order extending the time for commencing voidable transactions generally, without specifying the particular transaction or transaction to which it would apply (ie, a ‘shelf order’).

 

What You Need To Do

 

  • Following their appointment, a liquidator should commence their assessment of potential voidable transactions as soon as possible.

 

  • If potential voidable transactions are identified, consideration needs to be given to whether proceedings be brought within the 588FF(3)(a) Period.

 

  • If there is a concern about whether there will be sufficient time to bring the proceedings, then a liquidator should seek advice as to whether it is preferable to bring an application seeking an extension past the 588FF(3)(a) Period, or to commence proceedings.

 

Overview

 

On 11 March 2015, the High Court delivered judgment in:

 

  • Grant Samuel Corporate Finance Pty Limited v Fletcher; JPMorgan Chase Bank, National Association v Fletcher [2015] HCA 8 (Grant Samuel Proceedings), holding that an order extending the time to bring a voidable transaction proceeding cannot be varied by the procedural rules of the Court, past the 588FF(3)(a) Period; and

 

  • Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10 (Fortress Proceedings), holding that an order extending the time to bring a voidable transaction proceeding can be made without specifying particular transactions to which it applies (ie a “shelf order”).

 

Time Limit For Bringing Voidable Transaction Proceedings

 

Section 588FF(1) of the Act sets out the orders the Court can make if it is satisfied that a transaction of the company is voidable by reason of section 588FE of the Act. Section 588FF(3) provides that:

 

An application under subsection (1) may only be made:


(a) during the period beginning on the relation-back day and ending:


(i) 3 years after the relation-back day; or

(ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company;


whichever is the later;

 

or (b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.

 

On 30 May 2011, Hammerschlag J made an order under section 588FF(3)(b) extending the time in which the liquidators of Octaviar Limited (receivers and managers appointed) (in liquidation) (OL) could bring voidable transaction proceedings to 3 October 2011 (Extension Order).

 

Variation Of Orders Under Court Rules

 

Rule 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) provides a discretion for the Court to set aside or vary a judgment or order after it has been entered if:

 

it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order…

 

On 19 September 2011, Ward J made an order under rule 36.16(2)(b), varying the Extension Order by inserting the date “3 April 2012” in lieu of “3 October 2011” (Variation Order).

 

Grant Samuel Proceedings

 

The appellants in the Grant Samuel Proceedings:

 

  • applied to the NSW Supreme Court to set aside the Variation Order, where Black J found in favour of the liquidators of OL;
  • appealed to the NSW Court of Appeal, where the Court by majority (Macfarlan and Gleeson JJA, Beazley P dissenting) found in favour of the liquidators of OL; and
  • appealed to the High Court.

 

The High Court allowed the appeal in a unanimous judgment, holding that the only power given to a Court to vary the period in s 588FF(3)(a) is that given by section 588FF(3)(b), and that power cannot be supplemented, nor varied, by the rules of procedure of the Court to which an application is made.

 

The High Court held that the Court procedure rules as to variation do not apply because section 588FF(3) “otherwise provides”, and is therefore not “picked up” by section 79 of the Judiciary Act 1903 (Cth). Bringing voidable transaction proceedings within the time required by section 588FF(3)(a) or (b) is not merely a procedural stipulation, but is an essential condition of the Court’s jurisdiction under section 588FF(1). It is inconsistent with this condition (under the Act, a law of the Commonwealth) to allow variation of the time fixed by the Extension Order under NSW procedural rules.

 

Accordingly, while the Extension Order was valid, the Variation Order was not, and was set aside. The result is that any voidable transaction proceedings commenced by the liquidators of OL after 3 October 2011, are outside of time and are liable to be struck out.

 

Fortress Proceedings

 

On 19 September 2011, Ward J also made an order under section 588FF(3)(b) extending the time in which the liquidators of Octaviar Administration Pty Limited (in liquidation) (OA) could bring a voidable transaction proceeding against any party to 3 April 2012. The appellants in the Fortress Proceedings were not given notice of this application, but the liquidators were not aware, at that time, of the possibility of a claim against the appellants.

 

On 3 April 2012, proceedings in respect of alleged voidable transactions were commenced against the appellants by the liquidators of OA in the Supreme Court of Queensland.

 

The appellants in the Fortress Proceedings:

 

  • applied to the NSW Supreme Court to set aside the order of Ward J, where Black J found in favour of the liquidators of OA;
  • appealed to the NSW Court of Appeal, where the Court (Bathurst CJ, Beazley P, Macfarlan, Barrett and Gleeson JJA) found in favour of the liquidators of OA; and
  • appealed to the High Court.

 

The High Court dismissed the appeal, in another unanimous judgment, holding that section 588FF(3)(b) empowers a Court to make an order extending time without specifying the particular transaction or transactions to which it applies (that is, a shelf order).

 

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For further information please contact:

 

Joseph Scarcella, Partner, Ashurst

joseph.scarcella@ashurst.com

 

Ross McClymont, Partner Ashurst

ross.mcclymont@ashurst.com

 

Tom McDonald, Ashurst

tom.mcdonald@ashurst.com

 

Christopher Moses, Ashurst

christopher.moses@ashurst.com

 

Ashurst Insolvency & Restructuring Practice Profile in Australia

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