Summary of key points:
1. Once appointed, a liquidator should commence investigations of any potential voidable transactions to claw back available funds.
2. If voidable transactions are identified, the liquidator must consider whether to bring proceedings within the period specified in section 588FF(3)(a)the Corporations Act – if there is not enough time to bring proceedings, a liquidator may need to seek advice to bring an application for an order to extend the time under section 588FF(3)(b), or commence proceedings.
3. It is permissible for Courts to make an order extending time for commencing voidable transactions generally without specifying the particular transaction or transaction to which it would apply.
Liquidators have a range of tools to increase the pool of funds to satisfy debts to creditors. One of the principal provisions to “claw back” funds is to bring proceedings for a voidable transaction under sections 588FA and 588FB of the Corporations Act 2001 (Cth) (the Act). Section 55FE of the Act lists reasons why a transaction may be considered voidable.
Section 588FF(1) of the Act sets out the orders a Court may make if it is satisfied that a transaction of a company is voidable by reason of section 588FE of the Act. Section 588FF(3) of the Act provides that:
“An application under subsection (1) may only be made:
(a) during the period beginning on the relation-back day and ending:
(i) 3 years after the relation-back day; or
(ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company;
whichever is the later; or
(b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period.”
Recently, the High Court has handed down two decisions clarifying the operation of voidable transaction “claw back” provisions under the Act – in Grant Samuel Corporate Finance Pty Limited v Fletcher; JP Morgan Chase Bank, National Association v Fletcher 2015 HCA 8 and Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10.
In both proceedings, the Court confirmed that a liquidator may seek to extend the time to bring voidable transaction proceedings only if the application is brought pursuant to section 588F(3)(a) (before the later of 3 years after the relation-back day, or 12 months later the first appointment of a liquidator).
An extension of time cannot be subsequently varied by the rules of court procedure to extend the time granted in an initial extension order.
Facts of Grant Samuel Corporate Finance Pty Limited v Fletcher; JP Morgan Chase Bank, National Association v Fletcher 2015 HCA 8
On 10 May 2011, the liquidator applied to the Supreme Court of NSW for an order extending the time in which to bring voidable transaction proceedings. On 30 May 2011, Hammerschlag J granted the application and made an order under section 588FF(3)(b) of the Act, extending the time to 3 October 2011.
On 19 September 2011, Ward J made an order under rule 36.16(2)(b) of the NSW Uniform Civil Procedure Rules 2005 (the NSW UCPR), varying the extension order made by Hammerschlag J to extend the date to 3 April 2012.
Rule 36.12(2)(b) of the NSW UCPR provides a discretion to the Court to set aside or vary a judgment or order after it has been entered if “it has been given or made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order…” Similar provisions are contained in rule 668 of the Queensland UCPR 1999.
The High Court unanimously held that the only power given to a court to vary a period in section 588FF(3)(a) is that contained in section 588F(3)(b). It cannot be supplemented or varied by the rules of procedure of the court to which an application is made.
The Court held that the court procedure rules as to variation do not apply to because section 588FF(3) “otherwise provides” for the variation, and therefore section 79 of the Judiciary Act 1903 (Cth) did not operate to engage the state laws of procedure.
Thus, while the initial extension order was held to be valid, the variation order by Ward held not to be and set aside. Any voidable transaction proceedings commenced by the liquidators after 2 October 2011 are out of time and liable to be struck out.
Facts in Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2015] HCA 10
In September 2011, the respondent liquidators applied to the Supreme Court of NSW for an order that the time for applications under s 588FF(1) in relation to the Company in liquidation be extended from 3 October 2011 to 3 April 2012. On 19 September 2011, Ward J in the Supreme Court of New South Wales made an order extending time in which the liquidators could bring a voidable transaction against any party to 3 April 2012.
The appellants were not given notice of the application, but the liquidators were not aware at that time of the possibility of bringing a claim against the appellants.
The liquidators subsequently commenced voidable proceedings against the appellants. The appellants sought to have the order of Ward J set aside, but were unsuccessful at trial and on appeal to the NSW Court of the Appeal.
The High Court also unanimously dismissed the appeal, holding that section 588FF(3)(b) empowers a Court to make an order extending time without specifying the particular transaction or transactions to which it applies.