On 11 March 2015, the High Court delivered the following significant decisions (Grant Samuel Corporate Finance v Fletcher [2015] HCA 8 and Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10) in relation to s588FF(3) of theCorporations Act 2001 (Cth). That provision governs the circumstances in which a liquidator can obtain “shelf orders”, namely, an extension of time to commence proceedings in relation to “voidable transactions” (namely, unfair preferences, uncommercial transactions, insolvent transactions, unfair loans to a company and unreasonable director-related transactions). 

Both the Grant Samuel and Fortress Credit cases arise from the ongoing litigation related to the liquidation of the Octaviar Group of companies. 

1. Grant Samuel Corporate Finance v Fletcher [2015] HCA 8 

In Grant Samuel, the High Court held (overturning a decision of the NSW Court of Appeal) that the only power given to a court to vary the time period for the making of an application by a liquidator under s588FF(1) is that given by s588FF(3)(b). 

In this case, the Supreme Court of NSW made orders extending the period within which the liquidators could bring proceedings under s588FF(1) of the Act from 4 June 2011 until 3 April 2012. The liquidators subsequently made a further application to the Supreme Court within the period of that extension, but after 4 June 2011 (being the date of expiry of the 3 years after the Relation Back Period of 4 June 2008 referred to in s588FF(3)(a) of the Act). The Supreme Court granted that further extension, relying on rule 36.16 of the NSW Uniform Civil Procedure Rules (UCPR). The creditor’s appeal against that decision was dismissed by a majority of the NSW Court of Appeal. 

The High Court stated that the key question for determination was whether a court, on an application made outside the period referred to in s588FF(3)(a), but within an extended period ordered under s588FF(3)(b) on an application made within the s588FF(3)(a) period, may exercise power under the general rules of procedure in the UCPR to further extend the time for the commencement of a voidable transaction claim. 

In framing this question, the High Court stated that it was necessary to examine the relationship between the Corporations Act and the general procedural rules of the UCPR. The Court noted that s79(1) of the Judiciary Act 1903 (Cth) provides that the laws of each State or Territory, including laws relating to procedure, shall “except as otherwise provided by the Constitution or the laws of the Commonwealth” be binding on all courts exercising federal jurisdiction in that State or Territory [emphasis added]. In other words, the question was whether s588FF(3) “otherwise provides”, so that the relevant rule of the UCPR permitting variation of the extension order could not apply. 

In answering this question in the affirmative, the High Court emphasised the discussion in cases such as Gordon v Tolcher and BP Australia v Brown of s588FF(3) being the legislative response to the Harmer Report’s recommendation of placing more stringent time limits on actions by liquidators to recover the proceeds of voidable transactions. The Court held that this legislative history illustrated Parliament’s intention that a court only has the power given by s588FF(3)(b) to vary the time period for the commencement by a liquidator of a voidable transaction claim under s588FF(1). 

That power may not be varied or supplemented by rules of procedure of the court (such as State Supreme Courts) to which an application for extension of time is made. In making this finding, the High Court rejected the view that s79(1) of the Judiciary Act picked up the UCPR to authorise a further extension of time pursuant to an application made outside the period stipulated by s588FF(3)(a). Consequently, once the s588FF(3)(a) period had expired, the UCPR could not be relied upon to further extend the time within which a voidable transaction claim could be commenced. 

2. Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10 

In Fortress Credit, the High Court upheld authority from the NSW Court of Appeal to the effect that s588FF(3)(b) empowers a court to make an order extending time for commencement of proceedings under s588FF(1) without specifying the particular transaction or transactions to which that order would apply. The Court held that the function of s588FF(3)(b) is to confer a discretion on the court to mitigate, in an appropriate case, the rigours of the time limits imposed by s588FF(3)(a). 

In this case, the liquidators sought an order prior to expiry of the s588FF(3)(a) period (being 3 October 2011) for an extension of that period to 3 April 2012. The NSW Supreme Court granted that order. On 3 April 2012, the liquidators commenced proceedings under s588FF(1). The appellants sought to set aside the extension, but the appeals were dismissed by both the NSW Court of Appeal and the High Court. 

The High Court again referred to the legislative history of s588FF(3) and its reasoning in the Grant Samuel case in finding that the only express essential condition upon the exercise of the power under s588FF(3)(b) is that the application for an order under that subsection be made within the s588FF(3)(a) period. Once that condition is satisfied, s588FF(3)(b) confers a discretion on the court to mitigate the strictness of the time limits imposed by s588FF(3)(a) if the circumstances of the case make an extension of the time limit appropriate. In exercising that discretion, the court will consider all relevant circumstances, including the conduct of the liquidators. 

Conclusion 

Both of the above cases are a useful reminder of the important legislative policy underpinning s588FF(3) of seeking to subject liquidators to strict time limits in which to progress voidable transaction claims (in particular, voidable preference claims). That policy seeks to achieve a better balance between the interests of the company’s creditors and the need to ensure commercial certainty for parties who have dealt with the company after a finite period of time and might otherwise continue to be susceptible to such claims if strict time limits were not imposed on liquidators. 

In addition, the Fortress Credit decision is a particularly significant development for liquidators, as it is now clear that a liquidator does not have to specify a particular transaction or transactions when seeking an extension of time.