Octaviar – No Free Kick For Liquidators After Full Time
In March 2015, the High Court delivered its judgment in Grant Samuel & Ors v Fletcher & Ors [2015] HCA 8, and unanimously overturned the decision of the New South Wales Court of Appeal, in holding that liquidators cannot rely on the procedural court rules of a State or Territory, to extend the time within which to commence voidable transaction proceedings, under section 588FF(3)(a) of the Corporations Act 2001 (“the Act”).
How the game unfolded
The appellants were Grant Samuel Corporate Finance Pty Limited and JP Morgan Chase Bank. The respondents were the liquidators of Octaviar Limited (Receivers and Managers Appointed) (in liquidation) and Octaviar Administration Pty Limited (in liquidation) and (“Octaviar”).
The crucial play involved an application by the liquidators appointed to Octaviar for a further extension of time within which to bring voidable transaction proceedings. Section 588FF(3) of the Act stipulates the time within which a liquidator can bring a claim, and is in the following terms:
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.”
The relation back day for Octaviar was 4 June 2008, and as such, the time limit for the commencement of any proceedings pursuant to section 588FF(3) was 4 June 2011, absent any extension of time permitted under Section 588FF(3)(b).
On May 2011, Hammerschlag J made an order extending the time in which the liquidators for Octaviar could bring voidable transaction proceedings to 3 October 2011 (“Extension Order”).
On 19 September 2011, Ward J made an order pursuant to rule 36.16(2)(b) of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”) varying the Extension Order by amending the date set from 3 October 2011 to 3 April 2012 (“Variation Order”).
Rule 36.16(2)(b) of the UCPR provides courts in New South Wales with a discretion to vary or set aside a judgment or order after it has been entered, in the absence of a party.
Within the additional six months permitted under the Variation Order, the liquidators of Octaviar commenced voidable transaction proceedings against, inter alia, the appellants. Sensing foul play by the liquidators, the appellants applied to set aside the Variation Order on the basis that section 588FF(3)(b) of the Act does not permit any extension of time to be granted after the initial three year period has expired. The argument was unsuccessful at first instance and then again on appeal, however, the appellants were granted special leave to appeal to the High Court.
Ref’s Call – High Court Decision
On 11 March 2015, the High Court allowed the appeal in a unanimous judgment, finding that the sole power conferred to a court to vary the period in section 588FF(3)(a) lies in section 588FF(3)(b) and, that power cannot be supplemented, nor varied by rules or procedure of a court. Accordingly, once the three year period from the relation back-day has expired, no further extensions of time are permitted, notwithstanding if such an extension constitutes a variation of earlier orders.
In arriving at its decision, the High Court held that the commencement of voidable transaction proceedings within the time required by section 588FF(3)(a) or (b) is not merely a procedural stipulation, but is an essential condition of the Court’s jurisdiction pursuant to section 588FF(1) of the Act. The High Court therefore found that the Extension Order was valid, however, the Variation Order was not, and as such, the latter was set aside.
Relevantly, the High Court considered the effect of section 79(1) of the Judiciary Act 1903 (Cth) which provides that the laws of each State or Territory, including laws relating to procedure shall “except as otherwise provided by the Constitution or the laws of the Commonwealth” be binding on all courts exercising federal jurisdiction in that State or Territory.
The Act is a law of the Commonwealth, and therefore the issue for determination was whether the Act had “otherwise provided”, such that rule 36.16(2)(b) of the UCPR could not apply to allow the liquidators of Octaviar to vary the Extension Order.
The High Court held that the UCPR could not usurp the strict wording of the Act, which provides that any application for an extension of time “may only be made” during the time limit stipulated in section 588FF(3)(a) of the Act. In finding for the appellants, the High Court emphatically ruled that section 588FF(3) of the Act “otherwise provides”.
The Court also took the opportunity to affirm the judgment of Spigelman CJ in BP Australia Ltd v Brown[1] (“BP Australia”) where his Honour addressed the importance of certainty as the underlying legal policy for the time limits set out in section 588FF(3).
The result is that any voidable transaction proceedings commenced by the liquidators of Octaviar pursuant to the Variation Order are time-barred and liable to be struck out.
Final Whistle – Implications of Decision
The High Court decision in Grant Samuel provides welcome certainty to liquidators and creditors of a company alike, by clearly delineating the time within which voidable transaction proceedings can be commenced.
For liquidators in particular, the case is a timely reminder that following their appointment, a considered assessment should be undertaken of potential voidable transactions, as soon as practicable.
Once any potential voidable transactions are identified, a determination then needs to be made whether proceedings are to be brought within the limitation period prescribed by section 588FF(3)(a) of the Act or, alternatively, the length of time required when seeking an extension, thereby allowing sufficient time in which to file proceedings within the extended period.