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Voidable transactions: Extensions of time and the operation of 'shelf orders'

On 11 March 2015 the High Court of Australia handed down two related decisions clarifying a liquidator’s position with respect to applications for orders under section 588FF(3)(b) of the Corporations Act 2001 (Cth) extending the 3 year time limit within which a liquidator must apply for an order that a transaction is voidable

The High Court appeals related to applications made by the liquidators of Octaviar Limited (in liquidation) and Octaviar Administration Pty Limited (in liquidation) for orders extending the time to bring a claim under section 588FF(3)(b).

Grant Samuel Corporate Finance Pty Limited v Fletcher; JP Morgan Chase Bank, National Association v Fletcher [2015] HCA 8

In Grant Samuel Corporate Finance, the liquidators applied on 10 May 2011 to the Supreme Court of New South Wales for an order extending the period in s588FF(3)(a). That application was made within the 3 year period prescribed in s588FF(3)(a) which expired on 4 June 2011. The Court ordered an extension until 3 October 2011.

A second application was made by the liquidators within the extended period (on 19 September 2011) but outside of the s588FF(3)(a) period.

The Supreme Court made an order varying the first extension order under the Uniform Civil Procedure Rules 2005 (NSW) by changing the date for issuing claims from 3 October 2011 to 3 April 2012.

The question before the High Court on appeal was whether a court can exercise its power under general court procedural rules to further extend time in response to an application made outside the time prescribed in s588F(3)(a) but within an extended period ordered by the court under s588FF(3)(b) sought within the s588FF(3)(a) period.

The High Court’s answer to this question was no.

The High Court held, in allowing the appeal against the order further extending the time to bring claims that:

  • The only power given to a court to vary the 3 year period is that given in s588FF(3)(b) and it cannot be supplemented or varied by the rules of the court.
  • The time to bring an application under s588FF(3)(a) or (b) is a ‘precondition to the court’s jurisdiction under 588FF(1).’
  • No further extensions can be granted once the period in 588FF(3)(a) has expired and the court rules cannot be used to further extend the time.

Liquidators therefore must ensure that they make any application for an extension (including a further application for an extension) within the 3 year period from the relation back day.

Once the period expires no further application for an extension will be permitted and the court cannot vary an order extending time if outside of that time.

Fortress Credit Corporation (Australia) II Pty Limited v Fletcher [2015] HCA 10

In Fortress Credit the High Court dealt with whether an order extending time under 588FF(3)(b) must be limited to specific transactions identified in the order or whether it can be made more generally without identifying a particular transaction or transactions. The latter type of order is sometimes referred to as a “shelf order”.

Fortress appealed to the High Court from a decision of the Court of Appeal of New South Wales in which the Court of Appeal held that s588FF(3)(b) empowered a court to make an order without specifying the particular transactions.

The High Court considered that a balance be struck between on the one hand the purpose of the voidable transactions sections of the Act to avoid transactions by which an insolvent company has disposed of property that are regarded as unfair to creditors and the other hand the requirement that liquidators take action within a reasonable time, which provides certainty for those who have entered into transactions with the company.

The High Court in dismissing the appeal (and upholding the Court of Appeal’s decision) held that:

‘[t]he availability of shelf orders is a construction open on the text of 588FF(3)(b). It is a construction which is consistent with the evident purpose of that provision, to allow the court to mitigate the strictness of the time limits imposed by para (a) in an appropriate case.’(emphasis added)

Whilst the High Court has confirmed that it is open for an application to be made without specifying the particular transactions the Court did not go so far as to hold that a shelf order will always be available in each case.

Whether a shelf order is made will be considered on a case by case basis based on the evidence before it and subject to the court’s discretion.

Cowell Clarke has extensive experience in matters involving voidable transactions and if you would like to discuss this type of matter or any related insolvency topic please contact us.

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