ABILITY TO SEEK AN EXTENSION OF TIME

Section 588FF(3) of the Corporations Act 2001 (the Act) provides liquidators with a mechanism by which to obtain an extension of time within which proceedings against the recipients of voidable transactions may be commenced.

The High Court of Australia has recently considered the application of aspects of this section in two related appeals concerning the winding up of Octaviar Limited (Octaviar) and Octaviar Administration Pty Ltd (Octaviar Administration): Grant Samuel Corporate Finance Pty Ltd v Fletcher, JP Morgan Chase Bank, National Association v Fletcher [2015] HCA 8 (Grant Samuel) and Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10 (Fortress).

Section 588FF(3)(a) of the Act provides that the time for a liquidator to commence proceedings in relation to alleged voidable transactions is the later of either 3 years after the relation-back day or 12 months after the appointment of the liquidator (the Limitation Period). A liquidator can apply under s.588FF(3)(b) for extension of the Limitation Periods, but must do so during the Limitation Periods.

EXTENSIONS OF TIME OUTSIDE OF THE LIMITATION PERIOD

In Grant Samuel, the liquidator of Octaviar, during the Limitation Period, successfully made an application under s.588FF(3)(b) for an extension of time to commence proceedings in the Supreme Court of New South Wales. Subsequently, after the Limitation Period has expired, the liquidator sought a variation of the previous order, pursuant to the Uniform Civil Procedure Rules 2005 (UCPR) further extending the time to commence proceedings. That application was successful and the liquidator was afforded a further six months to commence proceedings (the Variation Order).

The appellant in Grant Samuel initially commenced proceedings seeking to set aside the Variation Order but was unsuccessful before the Court of Appeal. That decision was subsequently appealed to the High Court.

The High Court, held that the provisions of the UCPR could not be relied on to extend the time to commence proceedings once the Limitation Periods had expired because, to do so, would be to give preference to State legislation that is inconsistent with the terms of Commonwealth legislation.

The findings of the High Court confirm that if liquidators need further time to commence proceedings against the recipient of voidable transactions, such orders must be sought before the Limitation Periods expire.

"SHELF ORDERS"

In Fortress, the High Court was required to consider whether an order extending time to commence proceedings under s.588FF(3)(b) may be made even in circumstances where the liquidator had not specifically identified the particular transactions which might become the subject of later proceedings. Extensions of time which do not relate to particular transactions are often referred to as "shelf orders".

The appellants submitted that making shelf orders were contrary to a number of policy factors, such as creating disadvantage for potential defendants and the risk that liquidators will be encouraged not to identify potential defendants or transactions thereby reducing opposition to extension applications.

The Court acknowledged the appellants' submission and particularly the need to provide commercial certainty for those who have had past dealing with insolvent entities.

Equally, however, the Court recognised that, despite the best efforts of liquidators, it may be impossible to identify particular transactions in respect of which orders for extension of time could be made within the time permitted by s.588FF(3)(a). In balancing the interests of the liquidators and possible defendants, the Court inFortress noted the broad (non-exhaustive) definition of "transactions" in s.9 of the Act, which could become the subject of voidable transaction applications.

The High Court held that the making of shelf orders is open to the Court and an appropriate way for the Court to mitigate the strictness of the time limits otherwise imposed by s.588FF(3)(a) of the Act.

It is clear from the High Court's decision that the consideration of these factors is a balancing act to be considered on a case-by-case basis. It should also be remembered that even where an application for an extension of time is made during the Limitation Period, granting an extension is an exercise of the Court's discretion.

SUMMARY

If liquidators require time beyond the Limitation Period to commence proceedings against parties involved in suspected voidable transactions, such orders must be sought before the Limitation Periods expire. Once the Limitation Period has expired, no further extension can be granted.

In appropriate circumstances, liquidators will be granted "shelf order" extensions, which do not relate to particular transactions.