Gazal Apparel Pty Ltd v Davies - [2007] SASC 91

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
GAZAL APPAREL PTY LTD v DAVIES & ORS
[2007] SASC 91
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Duggan and The Honourable Justice David)
16 March 2007
CORPORATIONS - WINDING UP - LIQUIDATORS
Appeal from an order of a Master allowing an extension of time in which to file an application for repayment of monies allegedly paid out as insolvent payments or unfair preferences - the respondents, having been appointed as liquidators on 29 September 2005, issued proceedings against the appellant relying on the extension of time ordered by the Master on 31 March 2004 prior to their appointment - the order of the Master was made on the application of the original liquidators - whether the wording of the order permitting "the plaintiffs" an extension of time applies for the benefit of the respondents who were not acting as the plaintiffs at the time the order was made - order obtained by original liquidators was obtained in their capacity as liquidators - application made by the current liquidators was made within the perioid ordered by the Master and is an application contemplated by that order - appointment of another person to act as liquidator following the making of the Master's order irrelevant - the order, having been made in favour of "the plaintiffs", is not to be read as limited in its application to the persons originally holding the office of the liquidators.
Held: appeal dismissed.
Corporations Act 2001 (Cth) s 511, s 588FA, s 588FC, s 588FE, s 588FF; Acts Interpretation Act 1901 (Cth) s 20, s 21, referred to.

GAZAL APPAREL PTY LTD v DAVIES & ORS
[2007] SASC 91
Full Court: Doyle CJ, Duggan and David JJ

DOYLE CJ. This appeal raises the issue of whether an application to the Court made by the liquidators of a company is made within time. The liquidators rely on an order extending time. That order was obtained by previous liquidators, and is expressed as an order in favour of “the plaintiffs”, rather than being in favour of the liquidators, or the liquidators from time to time, of the company. The submission on appeal is that only the former liquidators can rely on the order extending time, because it is limited to them as “the plaintiffs”. Unless some other solution is found, the application made by the present liquidators must be struck out.
I consider that the Judge rightly rejected that submission. It has no real merit. My reasons for so deciding follow.
Background
Mr Davies and Mr Nicol are the liquidators of Harris Scarfe Limited (Receivers and Managers Appointed) (In Liquidation) and of Harris Scarfe Wholesale Pty Ltd (Receivers and Managers Appointed) (In Liquidation). I will refer to Mr Davies and Mr Nicol as the current liquidators, and to the two companies simply as “Harris Scarfe”.
On 29 September 2005 the current liquidators issued proceedings against Gazal Apparel Pty Ltd (“Gazal”). They claim that payments made…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2007] SASC 91
Decision Date: 16 March 2007

CaseChat Overview and Summary

The appeal before the Court concerns the interpretation and application of an order made by a Master allowing an extension of time for filing an application for repayment of monies allegedly paid out as insolvent payments or unfair preferences. The respondents, who were appointed as liquidators on 29 September 2005, issued proceedings against Gazal Apparel Pty Ltd relying on the extension of time ordered by the Master on 31 March 2004, prior to their appointment. The central issue before the Court was whether the wording of the order permitting "the plaintiffs" an extension of time applies for the benefit of the respondents who were not acting as the plaintiffs at the time the order was made. The Court had to determine if the order, obtained by the original liquidators, was applicable to the current liquidators appointed after the order was made. The Court also considered whether the creditors affected by the Master's order had the right to apply to set it aside and if such an application must be heard inter partes.

The Court found that the order obtained by the original liquidators was indeed made in their capacity as liquidators and thus in favour of the office of liquidator, not the individual holding that office at the time. This meant that the current liquidators, appointed after the order was made, were entitled to the benefit of the order. The Court reasoned that the orders were made in favour of the persons holding the office of liquidator and are available to the person or persons for the time being holding that office. The Court rejected the argument that the order was limited to the original liquidators, stating that it would cause practical problems and did not accord with the scheme of the Corporations Act. The Court's decision was grounded in the practicalities of administering estates in liquidation and the necessity of continuity in legal proceedings concerning insolvent companies.

Orders

Orders of the court

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Background

Background to the litigation

I consider that the Judge rightly rejected that submission. It has no real merit. My reasons for so deciding follow.Background Mr Davies and Mr Nicol are the liquidators of Harris Scarfe Limited (Receivers and Managers Appointed) (In Liquidation) and of Harris Scarfe Wholesale Pty Ltd (Receivers and Managers Appointed) (In Liquidation). I will refer to Mr Davies and Mr Nicol as the current liquidators, and to the two companies simply as “Harris Scarfe”. On 29 September 2005 the current liquidators issued proceedings against Gazal Apparel Pty Ltd (“Gazal”). They claim that payments made by Gazal to Harris Scarfe before the relation-back day of 3 April 2001 were insolvent payments for the purposes of s 588FC of the Corporations Act 2001 (Cth) (“the CA”) or were unfair preferences for the purposes of s 588FA of the CA and so are voidable transactions by virtue of s 588FE of the CA. On this basis they claim orders for payment of those moneys under s 588FF(1) of the CA. Section 588FF(3) provides:588FF(3)[Time limit on application under subs (1)] An application under subsection (1) may only be made:(a) within 3 years after the relation-back day; or(b) within such longer period as the Court orders on an application under this paragraph made by the liquidator within those 3 years.The proceedings by the current liquidators were not issued within three years after the relation-back day. However, on 31 March 2004, which is within three years after the relation-back day, Mr Dwyer and Mr Maxsted, the original liquidators of Harris Scarfe, applied to the Court for an order fixing a longer period within which an application might be made against certain creditors, including Gazal. Those proceedings identified Gazal as a company in relation to which a claim might be made, and in relation to which an order under s 588FF(3)(b) was sought. Gazal was not served with those proceedings. On 14 April 2004, without hearing Gazal, a Master made orders that included the following order:The period within which the plaintiffs may make an application under s 588FF(1) of the Corporations Act 2001 with respect to transactions alleged by them to be or to possibly be voidable transactions (not being transactions with identified creditors) be extended so as to expire at the conclusion of 2 October 2005.It is not now disputed that despite the awkward wording, the order purports to extend the time for bringing proceedings against Gazal. In his reasons the Judge explains why the order can and should be read as affecting Gazal. That order has the effect of permitting an application under s 588FF(1) of the CA to be made against Gazal within the period expiring on 2 October 2005. The issue, to which I will come in due course, is whether that order extends the period for the bringing of proceedings by “the plaintiffs” (the original liquidators) only, or whether it has effect to extend the time for the bringing of such proceedings by the current liquidators. In the proceedings by the current liquidators against Gazal, the liquidators rely on this order to meet the obstacle that s 588FF(3)(a) would otherwise present. They rely upon that order as fixing a longer period for the purposes of their proceedings, the order having been made within three years after the relation-back day.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

DOYLE CJ DUGGAN J (dissent) DAVID J (dissent)

I should add that the current liquidators also made an application, in the proceedings in which the Master made his order, for an order that the Master’s order be amended to refer to “the liquidators of the companies from time to time holding office”, rather than to the plaintiffs. The Judge took the view that there was no need to make that order either. The current liquidators have not appealed against the Judge’s refusal to amend the Master’s order, or against his refusal to substitute the current liquidators as plaintiffs.The Judge’s decision The parties formulated four questions which were said to be common to all of the applications before the Judge. The questions are:1.Are the current liquidators as plaintiffs in the actions referred to in the schedule to these reasons entitled to rely on the order of Master Kelly made on 14 April 2004 in Action 351 of 2004 extending the limitation period under s 588FF(3) of the Act?2.Does the order of Master Kelly made on 14 April 2004 in Action 351 of 2004 have the effect of extending the limitation period in respect of the claim of the current liquidators against Gazal Apparel Pty Ltd, Australian Weaving Mills Pty Ltd, and Sony Computer Entertainment Pty Ltd?3.Is a creditor whose interests are affected by the order of Master Kelly made on 14 April 2004 extending the limitation period under s 588FF(3) of the Act entitled to apply as of right to set aside the said order?4.If the answer to question 3 is yes, must the application seeking an extension of time be heard inter partes?The Judge answered each of these questions in the affirmative. It is the Judge’s answer to question 1 that is the subject of the appeal now before the Court. The Judge made the point that the order obtained by the original liquidators was obtained in their capacity as liquidators of Harris Scarfe. The essence of his conclusion in favour of the current liquidators appears from the following portion of his reasons:[32]… Where the person holding the office of liquidator changes during the course of the legal proceedings, it might be necessary to address particular questions such as undertakings given by the liquidator to the court or to a party to those proceedings but that fact does not gainsay the position that the orders of the court are always made in favour of the liquidator, not in favour of the individual for the time being holding that office. It follows that, in proceedings in which the liquidator is a party, the person holding the office of liquidator is bound by or has the benefit of orders made in those proceedings. So, if the person holding the office of liquidator is replaced by another, the person succeeding that office will be bound by or have the benefit of the orders made before being appointed to that office.[33]Thus, on 14 April 2004, when Master Kelly made the orders in action number 351 of 2004, those orders were made in favour of Messrs Dwyer and Maxsted as liquidators of HSL and HSW. They were made in the course of the liquidation of each company. They were not made for any other purpose. The orders were made in favour of the persons holding the office of liquidator of HSL and HSW and are available to the person or persons for the time being holding the office of liquidator of each company. As Messrs Nicol and Davies have now been appointed as liquidators in place of the original liquidators, they are entitled to the benefit of the orders. The Judge went on to add that this conclusion accorded with “reality and with the scheme of the Corporations Act”. He pointed to the practical problems that would arise otherwise.

Ratio Decidendi

Legal Principle Established

Established by: DOYLE CJ,

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