The decision in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] NSWCA 148 confirms the power of a court to make orders extending the time for the commencement of voidable transaction proceedings.

The recent New South Wales Court of Appeal decision of Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2014] NSWCA 148 considers whether a variation could be made to an extension order obtained under s588FF(3)(b) of the Corporations Act to allow the liquidators of Octaviar Administration to bring voidable transaction proceedings. In our article on 10 May 2013, we looked at the decision of the New South Wales Supreme Court in this case.

FACTS

In 2011, the liquidators of Octaviar Administration were granted an extension under s588FF(3)(b) extending the time for the commencement of proceedings for the recovery of voidable transactions under s588FF(1). At that time, the liquidators were not aware of the possibility of a claim against the Fortress Group and the Fortress Group were not named in the application for the extension or notified of the application, and for this reason the extension order of the Court was defined by the Court as a shelf order.

In 2012, the liquidators were granted a variation to the shelf order in respect of the Fortress Group, notwithstanding that the time specified in the shelf order had passed and the time limits in s588F(3)(a) for making an application for an extension had expired.

The Fortress Group appealed the 2012 decision.

THE ARGUMENTS ON APPEAL

On appeal, the Fortress Group argued, among other things, that:

  • read together, s588FF(1) and s588FF(3)(b) did not permit the Court to make a shelf order. Rather the Court could only grant orders under s588FF(3)(b) in respect of a particular person and a particular transaction or a particular class of persons and particular categories of transactions; and
  • the Court had no power to re-exercise its discretion under s588F(3)(b) once the period prescribed in s588FF(3)(a) had expired and the shelf order had been discharged.

THE DECISION

The Court of Appeal unanimously dismissed the appeal.

The Court acknowledged that the decision to grant a shelf order involved balancing considerations of fairness to parties who may be affected by potentially voidable transactions against the liquidator’s duty to assemble the pool of assets from which winding up claims may be satisfied. Ultimately, the Court found there was no compelling reason to overturn the line of authorities that permitted shelf orders to be granted.

A majority of the Court favoured a flexible interpretation of s588FF(3)(b), allowing the Court a broad discretion to weigh all relevant circumstances in deciding whether an extension of time ought to be granted.

The Court also held the primary judge had not discharged the shelf order and the question of whether the power under s588FF(3)(b) was “re-exercised” did not arise. Nevertheless, Bathurst CJ found the Court retains a discretion to set aside a shelf order as against a creditor in circumstances where the creditor had no notice of the application and where the creditor’s rights would be adversely affected. In the circumstances, it was not appropriate to exercise the discretion in favour of the Fortress Group.

COMMENT

This decision makes it clear that courts have the power to make a shelf order extending the time for the commencement of voidable transaction proceedings in circumstances where parties or transactions are not named in the application for the shelf order. The Court retains a broad discretion as to whether or not to set aside a shelf order on application by a creditor who is not notified of the application for the order. Critical to whether this discretion is exercised is whether the creditor can demonstrate substantial injustice or prejudice as a result of the extension of time under s588FF(3).

Counsel for the Fortress Group has forecast the possibility of an appeal to the High Court.