Summary

In a recent decision, the High Court unanimously dismissed an appeal from the Court of Appeal of New South Wales concerning the circumstances in which a “shelf order” may be made.  A “shelf order”  allows a liquidator to seek an extension of time in which to apply to the court for an order that a transaction be declared voidable, in circumstances where the relevant transaction cannot be identified.  InFortress Credit Corporation (Australia) II Pty Limited v Fletcher [2015] HCA 10, the High Court confirmed that a court can make such an order under s 588FF(3) of theCorporations Act 2001 (Cth) (Act)  notwithstanding the fact that the potentially voidable transactions cannot be identified.

The High Court’s decision has clarified a number of significant issues relating to extensions of time for the commencement of voidable transaction proceedings under the Act, including the power of the court to make “shelf orders” and the policy considerations which a court will take into account when determining a section 588FF(3) application.

Background

Section 588FF(1) of the Act allows a liquidator to make an application to the Court for an order that certain transactions made by an insolvent company prior to its liquidation are “voidable transactions”.  Under section 588FF(3)(a) an application must be made within the later of 3 years after the relation back day or 12 months after the first appointment of a liquidator.  A Court can extend the time.

A “shelf order” is an order that is made under section 588FF(3)(b) that extends the time for a liquidator to make an application pursuant to section 588FF(1) and does not specify a particular transaction or specific parties.

Fortress Credit

In Fortress Credit, the first respondents were the joint and several liquidators of the second and third respondents, Octavier Limited (OL) and Octavier Administration (OA), appointed by order of the Supreme Court of Queensland on 9 September 2009. The relevant relation-back day for the second respondent was 3 October 2008.

The time limit for the commencement of proceedings under s 588FF(3)(a) was 3 October 2011.  In September 2011, the liquidators applied for an order that the time for making any application pursuant to section 588FF(1) be extended to 3 April 2012.  Ward J granted the liquidators’ application.

On 3 April 2012, the liquidators of OA, commenced proceedings against Fortress Credit Corporation (Fortress) in the Supreme Court of Queensland for orders under section 588FF(1). On 18 December 2012, Black J of the Supreme Court of New South Wales dismissed an application by Fortress to set aside the extension order made by Ward J.  An appeal to the Court of Appeal was dismissed.  Fortress was subsequently granted leave to appeal to the High Court.

On appeal, Fortress submitted that an extension order under section 588FF(3)(b) could only be made in relation to an identified transaction.  It was argued that, if the orders were to apply to parties or transactions which were not identified in the order, there would be unreasonable uncertainty for parties that entered into transactions with the insolvent company prior to it being wound up.

In addition, Fortress also set out a number of “policy factors” said to militate against a broad construction of s 588FF(3) (at [25]), including:

  1. the disadvantage to potential defendants not identified in a shelf order;

  2. the encouragement to liquidators to not identify potential defendants, thereby reducing the prospect of opposition at the stage of the initial application;

  3. the risk of a multiplicity of litigation by successive defendants;

  4. the risk of inconsistent outcomes of applications to set aside extension orders by different defendants;

  5. the want of certainty for liquidators and prospective defendants in the event of leave being granted and then revoked;

  6. the potential for wasted costs; and

  7. the determination of applications with reference only to the evidence the liquidator elected to put before the court

The High Court unanimously held that “shelf orders” are available under s 588FF(3)(b) of the Act.

The Court did not consider that the matters raised by Fortress as to the potential for unreasonable uncertainty and other policy considerations raised, were factors which militated against the finding that the Court could make a “shelf order” in an appropriate case. Rather, these were matters that the Court could consider in the exercise of its discretion when considering whether or not such an order ought to be made. 

Take Away Lesson

“Shelf orders” are available under section 588FF(3) of the Act.  In any application for such an order, considerations of certainty  and other policy considerations must be balanced against the nature and purpose of the extension power under section 588FF(3).