This week's TGIF examines a High Court decision
which confirmed the power of a court under s 588FF(3) of the
Corporations Act to extend the time for the commencement of
voidable transaction proceedings, without identifying the
particular transaction or transactions to which the extension would
apply. Our article relating to the NSW Court of Appeal judgment
which this decision affirmed can be found
On 9 September 2009, William Fletcher and Kate Barnet were
appointed as liquidators of Octaviar Administration.
In September 2011, the liquidators were granted an order under s
588FF(3)(b) of the Corporations Act. This order extended the time
for the commencement of proceedings for the recovery of voidable
transactions under s 588FF(1).
Under s 588FF(3)(a), voidable transaction proceedings are
ordinarily required to be commenced:
3 years after a winding up order is filed (or a company is
otherwise wound up); or
1 year after a liquidator is appointed in relation to the
winding up of the company,
whichever is later.
However, s 588FF(3)(b) gives power to the court to order a
longer period for voidable transaction proceedings to be brought,
so long as a party applies for such an order within the time limits
listed above. In doing so, the court typically balances the need
for commercial certainty on the part of those who had past dealings
with the insolvent on the one hand, and the competing interest of
the creditors of the insolvent on the other.
In this case, the NSW Supreme Court extended the time for the
commencement of proceedings from 3 October 2011 to 3 April
CLAIM AGAINST FORTRESS
On 3 April 2012, the liquidators, acting pursuant to that
extension, commenced proceedings against Fortress Credit
Corporation (Australia) II Pty Limited (Fortress)
for orders under s 588FF(1). Fortress lost its application to have
the extension order set aside in the NSW Supreme Court, and its
subsequent appeal to the NSW Court of Appeal was dismissed.
Fortress then appealed to the High Court.
The key question for determination was whether such an extension
could only be ordered in relation to a transaction or transactions
identified in the order, or may apply to transactions not able to
be identified at the time of the order. The latter form of order,
the validity of which had been questioned, is generally referred to
as a 'shelf order'.
CAN SHELF ORDERS BE GRANTED?
The appellant's primary argument was that the extension of
time order was required to specify the particular transaction in
respect of which the order was made, the time that it was done and
the act done to give effect to it within a relevant period; that
is, that a court cannot make shelf orders. This, it was
argued, was the preferred construction based on the underlying
premise of the section and policy factors said to weigh against
such a broad construction.
The Court disagreed.
The Court found that there was no independent basis for the
assertion that an extension of time order needs to identify a
particular transaction. Indeed, the only express essential
condition upon the exercise of the power was that the application
be made within the time limit specified.
Furthermore, the power of the Court to extend time under s
588FF(3)(b) was discretionary, with questions of "what is a
reasonable or unreasonable prolongation of uncertainty" being
best left for the Court to determine on a case-by-case basis,
rather than globally in judicial interpretation of the
The Court found that this discretion was to mitigate the
strictness of the time limits imposed by s 588FF(3)(a) in
appropriate cases, a fact which was reinforced by the legislative
history of the provision.
WHAT IS THE SIGNIFICANCE OF THE DECISION?
The Court's decision provides comfort to liquidators as to
the ability of a court to make shelf orders at a time when it may
not be possible to identify precisely those transactions which are
vulnerable to challenge under the voidable transaction provisions
of the Corporations Act.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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