Australia: The High Court closes the back door option for liquidators to obtain a further extension of time to bring voidable transaction proceedings

The High Court of Australia unanimously reversed the decisions of the New South Wales Court of Appeal, and of Justice Black at first instance, in finding that liquidators cannot rely on the procedural court rules of a State or Territory to apply, outside the period allowed in the Corporations Act 2001 (Cth) (Corps Act), to extend the time within which they can bring voidable transaction proceedings under s. 588FF of Corps Act.

We have previously considered the first instance and appellate judgments.

In Grant Samuel Corporate Finance Pty Limited v Fletcher; JPMorgan Chase Bank, National Association v Fletcher [2015] HCA 8, Corrs represented the successful appellants, JPMorgan Chase Bank, National Association and JP Morgan Securities Australia Limited.

WHAT HAPPENED?

This case involved an application by the liquidators appointed to Octaviar Limited for a further extension of time within which to bring voidable transaction proceedings.

Typically, voidable transaction proceedings must be brought within three years. However, the court has the power, under s. 588FF(3)(b) of the Corps Act, to extend that time period, provided that the liquidator's application for an extension is brought within the initial three year limitation period.

Here, the liquidators had already obtained an extension of time (for six months) under s. 588FF(3)(b) of the Corps Act (Extension Order). After the initial three year limitation period had ended but before the additional six months had expired, the liquidators applied to the court for:

1. a second extension of time (another six months) under s. 588FF(3)(b) of the Corps Act; or
2. alternatively, a variation of the Extension Order pursuant to r 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).

Rule 36.16(2)(b) of the UCPR is a procedural rule which empowers courts in New South Wales to vary orders that have been made in the absence of a party.

The court granted the liquidators the second extension of time they requested. In granting the second extension, the court found that it could not rely on s. 588FF(3)(b) of the Corps Act after the initial three year period had passed, and so instead relied on r 36.16(2)(b) of the UCPR to vary the Extension Order (Variation Order).

Within the six months allowed under the second extension, the liquidators commenced voidable transaction proceedings against, among others, the appellants. At the time the voidable transaction proceedings were commenced, the initial three year limitation period, and the first six month extension, had ended.

The appellants challenged the Variation Order on the basis that s. 588FF(3)(b) of the Corps Act did not allow an extension of time to be granted after the initial three year period had expired. Although that argument was unsuccessful at first instance and on appeal, the appellants were granted special leave to run the argument before the High Court.

HIGH COURT DECISION

Section 79(1) of the Judiciary Act provides that the laws of each State or Territory, including the laws relating to procedure, shall, "except as otherwise provided by the Constitution or the laws of the Commonwealth", apply to all courts exercising federal jurisdiction in that State or Territory.

In considering the appellants' case, the High Court stated that the real issue (which it said was not addressed by the Court of Appeal) was "whether s. 588FF(3)(b) 'otherwise provides' so that the relevant rule of the UCPR permitting variation of the extension order cannot apply."

The High Court distinguished its prior decision in Gordon v Tolcher¹ (Gordon), which the Court of Appeal had relied on to find that once an application for an extension of time is made under s. 588FF(3)(b) of the Corps Act, the conduct of the litigation is left to the procedures of the particular court in which the application is made.

The High Court instead highlighted its findings in Gordon that the bringing of an application within the period set out in s. 588FF(3)(b) of the Corps Act is a "precondition to the court's jurisdiction" under s. 588FF(1) and an "essential aspect of the regime".

The High Court endorsed Spigelman CJ's judgment in BP Australia Ltd v Brown (BP Australia),² where he stated that the legal policy for the time limits set out in s. 588FF(3) is certainty, and that the section only permits a "single determinate extension of time."³

In the High Court's view, amendments to s. 588FF⁴ since BP Australia reinforced "the decision of the legislature, in balancing in a liquidation the competing interests of creditors and those who...might be the subject of s. 588FF(1) proceedings" to limit, in "clear and emphatic" language, the times within which such actions may be brought.

In finding for the appellants, the High Court unanimously ruled that s. 588FF(3) of the Corps Act "otherwise provides". This has the effect that a Court's power to vary the time period within which liquidators can bring voidable transaction proceedings is solely contained in s. 588FF(3)(b), and that the power cannot be supplemented or varied by rules of procedure of the court in which the application for an extension is brought.

WHAT ARE THE IMPLICATIONS OF THIS DECISION?

For parties who have transacted with companies in liquidation, the decision provides a welcome certainty that once the time period set out in s. 588FF(3), or any extension granted under that section has expired, liquidators will no longer be able to commence voidable transaction proceedings against them.

For liquidators, the decision sends a clear message that the three year time limit for voidable transaction proceedings can only be extended by an application made within that period. It is therefore critical to think carefully about the length of time needed when seeking an extension, and then obviously to file any unfair preference claims within the extended period.

Footnotes

¹ (2006) 231 CLR 334.

² (2003) 58 NSWLR 322.

³ Gordon at 345 - 346.

⁴ In 2007 the Corporations Amendment (Insolvency) Act 2007 (Cth) introduced a second limb to s. 588FF(3)(b) so that applications for voidable transaction proceedings may also be brought 12 months after the first appointment of a liquidator in a winding up.

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