By Georgina King a Senior Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group
A recent decision of the Federal Court in which liquidators were granted an extension of the usual limitation period for bringing voidable transaction claims under the Corporations Act 2001 (Cth) (Act), provides useful guidance about the circumstances in which an extension of time for voidable claims is likely to be granted.
In McCann v Mawson Restructures and Workouts Pty Ltd, in the matter of Walton Construction (Qld) Pty Ltd (in liq) [2016] FCA 1152, the liquidators of two related construction companies sought a six month extension of the period within which any applications could be made pursuant to section 588FF of the Act in respect of voidable transactions.
At the time of the application the liquidators had identified potential voidable transactions involving various parties and expected further voidable transactions to be uncovered through a full examination of the accounts and documents of the companies which they intended to do during the period of the extension.
The orders sought by the liquidators were general or “shelf” orders in that they did not specify a particular respondent or transaction in respect of which the extension was sought and would apply to any potential voidable transaction claims under section 588FF. Notwithstanding that no respondents were named in the orders, the application was opposed by two parties who the liquidators had identified possible claims against.
The background to the application was that the former administrators of the companies were appointed liquidators on 8 November 2013. On 29 July 2014, following a first instance and appeal decision, the initially appointed liquidators were removed due to a conflict of interest and replaced by the liquidators who were seeking the extension. The administrators had been appointed on 3 October 2013, the relation-back day for the purposes of any voidable transaction claims pursuant to section 588FF of the Act and accordingly when the new liquidators were appointed the relation-back period had already started to run approximately 10 months earlier.
In December 2015, the liquidators conducted public examinations of various company officers and advisers. The timing of the examinations was found to have been at least partly attributable to the time and work required to recover and review the companies’ hard copy and electronic records. That work included restoring electronic records which had not been imaged effectively by the former liquidators. The imaging was necessary because the server containing the companies’ accounting systems had been sold prior to the administrators being appointed.
The liquidators had also faced issues and delay in obtaining funding beyond that provided by ASIC to preserve the books and records, recover the electronic accounting records and prepare section 533 supplementary reports. However on 13 September 2016, just prior to the hearing of the application for the extension, the sum of $987,734.13 had been paid to the liquidators in respect of one of the companies. The liquidators indicated that they intended to apply for funding for the other company.
Having considered the facts, Edelman J concluded that the delay in the liquidators conducting their investigations and making applications in respect of the voidable transactions was adequately explained by the timing of the liquidators’ appointment, the difficulties they had faced in respect of the books and records and obtaining funding, and evidence establishing that the liquidators had performed considerable work during the period of their appointment.
It had also been ultimately conceded by the opposing parties that they would not suffer any prejudice other than the general prejudice of delay suffered by any party against whom a claim might be brought following an extension of time.
In respect of the question of the merits of the claims, an issue raised in opposition to the application for the extension, His Honour noted that the merits of a claim will weigh more heavily where an extension is sought to bring a claim that has been identified, as opposed to when the reason for the extension is to investigate, consider and obtain advice of counsel as to whether a claim should be brought. He further noted in respect of the issue of merits, that the arguments raised at the hearing of the application in respect of possible grounds of defence were matters that might need to properly considered by the liquidators during the extension of time sought rather than a reason to not grant the extension and that it was possible that further claims not yet identified would be identified during the liquidators’ further investigation meaning that the merits of those claims could not yet be assessed.
Having regard to these matters orders were made that the time for making any application under section 588FF in respect of the companies be extended to a date 6 months after the expiry of the limitation period under the Act.
The decision demonstrates that where further time is genuinely required to investigate, consider and bring potential voidable transaction claims in a liquidation, due to circumstances other than undue delay in obtaining records and investigating and pursuing the claims or another matter within the liquidators’ control, an extension of time may be granted. Having proper grounds for requiring the further time will be critical and the action taken from the time of appointment and proposed to be taken during the period of the extension will be important in that regard.
Read the full judgment here(link is external)
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Georgina King on (02) 9806 7485 or georginak@matthewsfolbigg.com.au, or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au
