Insolvency Law Update - High Court pronounces on liquidators’ shelf orders and other extension of time orders

Commercial Law
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The High Court of Australia has today handed down two judgments regarding shelf orders and other extension of time orders, both cases arising from the Octaviar liquidations.

1. In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10 the Court unanimously dismissed an appeal from the NSW Court of Appeal and held that a court can make an order under s 588FF(3) of the Corporations Act 2001 (Cth) to extend the time within which a company’s liquidator may apply for orders in relation to voidable transactions, even though those transactions may not be able to be identified at the time of the order. There has previously been some discord between state courts on this issue, and this decision provides reassurance to liquidators as to the availability of shelf orders. The judgment may be read in full here, and the summary on the High Court’s website here.

2. In Grant Samuel Corporate Finance Pty Ltd v Fletcher; JP Morgan Chase Bank, National Association v Fletcher [2015] HCA 8the Court unanimously allowed both appeals, holding that the rules of courts of the States and Territories cannot apply so as to vary the time dictated by s 588FF(3) of the Corporations Act 2001 (Cth) for the bringing of proceedings for orders with respect to voidable transactions.

Sub-section 588FF(3)(a) requires an application for orders in relation to voidable transactions to be made within a prescribed period. (Either 3 years from the relation-back day or 12 months after the first appointment of a liquidator in the winding up.) Sub-section 588FF(3)(b) allows a liquidator – only during that period (usually 3 years) – to bring an application to extend this time period.

In this case, the liquidators had applied for and obtained an order under sub-section 588FF(3)(b) extending the period within which they could bring proceedings unders 588FF(1) by four months beyond expiry of the prescribed period. During that four month extension – but after the expiry of the original period – the liquidators made a further application to again extend the period. The NSW Supreme Court made an order under r 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) varying the extension order by changing the date by which the liquidators could bring voidable transaction proceedings. The appellants applied to set aside that variation order, and it was this which lead to this High Court appeal. The appellants were unsuccessful at first instance, and their appeal was dismissed by a majority of the NSW Court of Appeal, but they were ultimately successful in the High Court.

The High Court held that the bringing of an application within the time required by s 588FF(3)is a precondition to the court’s jurisdiction under s 588FF(1) to make orders as to voidable transactions, and that the only power given to a court to vary the period prescribed ins 588FF(3)(a) is that given by s 588FF(3)(b). It followed, so the Court held, that once the period in s 588FF(3)(a) had elapsed, the UCPR could not be utilised to further extend the time within which voidable transaction proceedings under s 588FF(1)could be brought. (See [23] and the discussion which precedes it.)

Thus if the liquidators needed more than 4 months beyond the initial 3 years to be in a position to issue voidable transaction proceedings, they could only extend the 4 months to a longer period by also bringing a second extension application before the 3 year period had elapsed. In practice, however, it might be unlikely to become aware of the certain enough need for a longer period to make a second application so soon after the first. Perhaps, in light of this decision, we will find Courts may now become willing to grant somewhat longer extension periods than before. However that may be doubtful, having regard to the legal policy favouring certainty which underlies s 588FF(3), per the observations Spigelman CJ in BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322 at 345-346 ([115] and [118]), which was quoted with approval by the High Court here (see [17]-[21]). I suggest it will usually depend upon the evidence in each case.

The judgment may be read in full here, and the summary on the High Court’s website here

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Carrie is a commercial law barrister practising with a focus on insolvency and corporations law, equity and trusts, fraud, contract and restitution.

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