Australia: Voidable transactions and applications to extend time: lessons for liquidators

Last Updated: 13 April 2015
Article by Heather Collins and Peter Harkin

In brief - Courts will not grant further extensions if second application is made too late

The High Court's decision in Grant Samuel Corporate Finance Pty Ltd v Fletcher: JP Morgan Chase Bank, National Associate v Fletcher [2015] HCA 8 shows that liquidators who wish to make a second application to extend time to make an application to void a transaction must do so within time or risk losing the right to make an application.

Liquidators must act within time limitations

Liquidators have potential weapons available to them to "claw back" money and other property from creditors and others. Such recovery action is subject to time limitations.

So far as potentially voidable transactions against the liquidator are concerned, such actions must be commenced within three years after the relevant date (known as the "Relation-Back Date" - this is usually the date upon which the winding up application was commenced, or when a voluntary administrator was appointed) or 12 months after the appointment of a liquidator in a winding up, whichever is the later ("the relevant period").

There are provisions in the Corporations Act 2001 (Cth) which allowed for such applications to be extended beyond the relevant period and there are rules under state legislation which have been used, in the past, to vary such orders and allow for further extensions. However, in Grant Samuel the High Court decided that if an order is made extending the period, a court cannot then grant a further extension if that second application for the further extension is made outside the relevant period.

Application to set aside variation order dismissed by Supreme Court and Court of Appeal

The liquidators in Grant Samuel made an application to extend the period within which they might bring proceedings to recover funds pursuant to what they identified as voidable transactions following the collapse of the Octaviar Investment Group. (See section 588FF(1) of the Corporations Act.)

Under section 588FF(3)(a) of the Corporations Act, liquidators, if they identify a claim within the relevant period, can apply to the court within that period to extend the time to commence proceedings.

The first application was made well within the relevant period, but the liquidators did not get their claim properly prepared before the relevant period expired. They consequently sought a further extension by a variation of the first extension (this time under rule 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR)).

The second application was made and Justice Black in the Supreme Court made a variation order further extending the period under the rules. Importantly, that application was made outside of the relevant period which otherwise would have prevailed but before the first extension order had expired.

Both the first application for an extension and the second were made on an ex-parte basis, that is, without the defendant being present. When the defendant learnt of the second extension, it sought to set aside those orders. Justice Black dismissed the application to set aside the variation order.

The matter went on appeal and the Court of Appeal, by a majority, agreed with Justice Black and again dismissed the application.

Uniform Civil Procedure Rules invoked in High Court appeal

It then went on appeal to the High Court. The principal argument before the High Court was whether a court, on an application made outside the relevant period but within the extended period ordered under section 588FF(3)(b), may exercise power under the general rules of procedure in the UCPR to further extend time for the making of an application under section 588FF(1).

The High Court, after hearing argument, held that:

  • The legal policy which underlies section 588FF(3) is one which favours certainty.
  • The term "may only" has the effect of defining the jurisdiction of the court by imposing a requirement as to time as an essential condition of the right conferred by section 588FF(1).
  • The only power given to a court to extend the relevant period is that given by operation of section 588FF(3)(b) the Corporations Act. That power may not be supplemented, nor varied, by rules of procedure of the court to which an application for extension of time is made.
  • The variation order should be set aside.

Liquidators must seek extension within the limitation period

Careful attention must be paid to the limitation period if an extension is sought. It must be of such length to enable the liquidator to commence the claim because the court won't allow a second bite at the cherry and the fall back of an extension order under the UCPR is not available.

Heather Collins Peter Harkin
Restructuring and insolvency
CBP Lawyers

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