Merrion B Pty Ltd v Donchiod Pty Ltd (in liq)
[2023] VSC 111
•16 March 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
S ECI 2019 04528
IN THE MATTER OF DONCHIOD PTY LTD (in liq) (ACN 601 212 300)
BETWEEN:
| MERRION B PTY LTD (ACN 624 885 598) | Plaintiff |
| v | |
| DONCHIOD PTY LTD (in liq) (ACN 601 212 300) | Defendant |
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JUDGE: | HARGRAVE JA |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 February 2023 |
DATE OF JUDGMENT: | 16 March 2023 |
CASE MAY BE CITED AS: | Merrion B Pty Ltd v Donchiod Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 111 |
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CORPORATIONS – Application for winding up – Six month period for determination of application – Six month period expired – Associate Justice then extended time and later made a winding up order – Whether Associate Justice had jurisdiction to make order extending time – Whether error in exercise of Associate Justice’s discretion to apply slip rule – Corporations Act 2001 (‘the Act’) s 459R – Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) r 36.07 (‘slip rule’) – Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd (1985) 61 FCR 385 applied – Hrycenko v Hrycenko [2022] FCAFC 152 discussed.
APPEAL – Application by insolvent company to extend time to appeal against winding up order – Application heard together with proposed appeal if extension granted – Two year delay – Delay not satisfactorily explained – Company insolvent – Relevant prejudice – Director of company relied on undertaking to pay all creditors within 30 days if appeal successful – Director’s conduct under investigation by Australian Securities and Investments Commission under s 206F of the Act – Policy considerations – Proposed appeal arguable but would fail – Extension of time refused – Rules 77.06.2(1)(a) and (b).
APPEARANCES: | Counsel | Solicitors |
| For the Applicant Director of the Defendant | Mr M Gronow KC with Mr P Agardy | Holding Redlich |
| For the Plaintiff | Mr J Schulz | Francis V Gallichio Lawyers |
| For the Liquidator of the Defendant | Ms C Pulverman (solicitor appearing) | Wisewould Mahony |
TABLE OF CONTENTS
Should the director have leave to prosecute an application by the company to extend the time for seeking leave to appeal?................................................................................................................... 6
Applicable legal principles: extension of time............................................................................ 7
Is the delay satisfactorily explained?............................................................................................. 8
Is the company solvent?.................................................................................................................. 13
Will there be relevant prejudice if the extension is granted?................................................. 13
Merits of the proposed appeals: Is the decision in Elyard plainly wrong?.......................... 14
Merits of proposed appeals: Should the extension order have been made under the slip rule?.............................................................................................................................................................. 27
Conclusion and orders.................................................................................................................... 33
HIS HONOUR:
On 2 September 2020, the Court ordered that Donchiod Pty Ltd (‘the company’) be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth) (‘the Act’). More than two years later, relying on a Full Federal Court decision published on 9 September 2022,[1] the sole director of the company filed an application seeking leave to bring applications on behalf of the company seeking extensions of time to prosecute appeals by the company against – first, an order extending the time for determination of the winding up application; and second, the winding up order itself. The primary basis of the proposed appeals is a contention by the director that the extension of time order was made without jurisdiction and, as a result, the winding up order was also made without jurisdiction. It is necessary to set out the facts in more detail.
[1]Hrycenko v Hrycenko [2022] FCAFC 152 (‘Hrycenko’).
On 3 September 2019, the plaintiff served a statutory demand under s 459E of the Act on the company. The company failed to comply with the statutory demand within the 21 day statutory period.
On 4 October 2019, the plaintiff filed an originating process in the Court seeking orders that the company be wound up in insolvency under s 459P of the Act, relying on the company’s non-compliance with the statutory demand. Pursuant to s 459R(1) of the Act, the winding up application was required ‘to be determined within 6 months after it is made’, unless under s 459R(2) the Court extends the period within which the application is to be determined and such order is made ‘within that period’. In the absence of an extension order being made, s 459R(3) provides that the winding up application ‘is … dismissed if it is not determined’ within the six month period or any extension thereof. The full text of s 459R is set out below:
Period within which application must be determined
(1)An application for a company to be wound up in insolvency is to be determined within 6 months after it is made.
(2)The Court may by order extend the period within which an application must be determined, but only if:
(a)the Court is satisfied that special circumstances justify the extension; and
(b)the order is made within that period as prescribed by subsection (1), or as last extended under this subsection, as the case requires.
(3)An application is, because of this subsection, dismissed if it is not determined as required by this section.
(4)An order under subsection (2) may be made subject to conditions.[2]
[2]Corporations Act 2001 (Cth) s 459R (emphasis added).
On 25 October 2019, the company filed an interlocutory process in the winding up proceeding, seeking leave under s 459S of the Act to oppose the winding up application on a ground it could have relied on to have the statutory demand set aside within the statutory period. The relevant grounds were that the plaintiff’s debt was disputed on genuine grounds and thus the winding up application was an abuse of process.
On 2 March 2020, the winding up application was heard before Randall AsJ. During the hearing, the associate judge granted the company leave to amend its interlocutory application (‘the 2 March order’) and made directions for the filing of further written submissions. His Honour reserved his decision.
On 3 April 2020, the six month period under s 459R(1) of the Act expired without any order extending that period being made under s 459R(2).
In June 2020, the associate justice’s decision was still reserved. The plaintiff’s advisors then appreciated that the six month period under s 459R(1) of the Act had expired. In these circumstances, the plaintiff applied to the Court under s 459R(2) of the Act and r 36.07 (‘the slip rule’)[3] to correct the 2 March order so that it included an extension of the period during which the winding up application was to be determined. The slip rule is in the following terms:
36.07The Court may at any time correct a clerical mistake in a judgment or an order or an error arising in a judgment or an order from any accidental slip or omission.
[3]Supreme Court (General Civil Procedure) Rules 2015 (‘the Rules’)
Each of the parties filed written submissions concerning the slip rule application. The plaintiff relied upon the Full Federal Court authority in Elyard Corporation Pty Ltd v DDB Needham Sydney Pty Ltd,[4] to the effect that the Federal Court equivalent of the slip rule may have application in circumstances such as the present if: the failure to seek an extension during the six month period is due to an accidental slip or omission; the correction is necessary to avoid injustice; and, if an extension order had been sought when the order sought to be corrected was made, it is clear that the discretion to extend could only have been exercised in favour of extending the period.
[4](1985) 61 FCR 385 (‘Elyard’).
The company contended that the associate justice did not have jurisdiction to extend the six month period provided for in s 459R(1) of the Act because s 459R(2)(b) only gives that jurisdiction if the extension order is made within the six month period and, as it was not, the winding up application stood dismissed by force of s 459R(3). This was the same as the argument which was rejected in Elyard.
The company also relied on a single judge decision of the New South Wales Supreme Court in Amorin Constructions Pty Ltd v Kamtech Electrical Services Pty Ltd,[5] which held that an order under the New South Wales equivalent of the slip rule could not cure a failure to seek an extension within the six month period because an order extending the period involves an independent discretion,[6] and that on this basis the decision in Elyard was plainly wrong.[7]
[5](2008) 73 NSWLR 626 (‘Amorin’).
[6]Ibid 630–1 [18]–[28], 634 [59].
[7]Ibid 634.
On 14 August 2020, the associate justice delivered reasons for granting the plaintiff’s application under the slip rule (‘extension reasons).[8] His Honour made an order correcting the 2 March order — ‘to include an order pursuant to s 459R(2) of the [Act] extending the period within which the [winding up] application filed on 4 October 2019 is to be determined to 4 September 2020’ (‘the extension order’).
[8]Merrion B Pty Ltd v Donchiod Pty Ltd [2020] VSC 499 (‘extension reasons’).
In deciding to correct the 2 March order to include the extension order, the associate justice applied Elyard. In the extension reasons, the associate justice expressly stated that he was ‘satisfied that the issue [the pending expiry of the winding up application under s 459R(3) of the Act] was not raised as a result of an accidental slip or omission by either the practitioners or the Court’,[9] and that ‘it goes without saying that if the application had been made at the relevant time, and my attention had been drawn to the expiry date, I would have allowed more time given the workload of the Court in March 2020.’[10] Further, the associate judge stated that he was satisfied, as required by s 459R(2)(a) of the Act, that there were special circumstances justifying the making of an extension order under s 459R(2), namely, ‘that the hearing had been completed save for … a determination to be handed down by myself … and … more time was required for judgment given the workload of the Court’.[11]
[9]Ibid [32].
[10]Ibid.
[11]Ibid [33].
On 4 September 2020, the associate judge made orders that the company be wound up in insolvency under the provisions of the Act (‘the winding up order’), that Craig Bolwell be appointed the liquidator, and ordered a stay of the winding up order until 4:00 pm on 17 September 2020 to enable the company to consider whether or not to seek leave to appeal. The associate judge published reasons for his decision.[12] In those reasons, the associate judge considered the company’s interlocutory process under s 459S of the Act, seeking leave to oppose the winding up application on the grounds that the plaintiff’s debt was genuinely disputed and the winding up application was thus an abuse of process, and the company’s contention that it was solvent.
[12]Merrion B Pty Ltd v Donchiod Pty Ltd(No 2) [2020] VSC 566 (‘the winding up reasons’).
The associate judge accepted that the company had established a genuine dispute as to the existence of the plaintiff’s debt and expressly stated that, if an application had been made under s 459G of the Act to set aside the statutory demand, he would ‘most likely’ have set it aside on that ground.[13] On the evidence as a whole, however, the associate judge concluded that he could not ‘gauge whether the company is solvent … even if the claim by the plaintiff were not taken into account’.[14] On this basis, the associate judge concluded that the company has not displaced the presumption of insolvency created by its failure to comply with the plaintiff’s statutory demand.[15] The associate judge was also not satisfied that the company had given any sufficient explanation as to the reason for not making an application to set aside the plaintiff’s statutory demand within the prescribed 21 day period.[16] In these circumstances, the associate judge concluded:
accordingly, the finding that there is a serious question to be tried on the grounds sought to be raised with respect to a genuine dispute is, in isolation, irrelevant. Alone, such finding does not enliven the exercise of the discretion to give leave under s 459S.[17]
[13]Ibid [42].
[14]Ibid [96] (a) and (c).
[15]Ibid (b)
[16]Ibid (d).
[17]Ibid (e).
In the circumstances, the associate judge dismissed the company’s application under s 459S of the Act and ordered that the company be wound up in insolvency on the basis of the presumption of insolvency.[18]
[18]Ibid [96]–[100].
The company obtained legal advice within the stay period that an appeal would be unlikely to succeed. No appeal was commenced.
It was not until 29 September 2022 that the application presently before the Court was filed. Initially, the application named Paul Chiodo (‘Paul’) as the applicant director of the company. This was an error, as Paul had by this time ceased to be a director. On 20 October 2022, the Court granted leave to amend the interlocutory process to substitute Paul’s brother, Sam Chiodo (‘the director’) as the applicant, as he is the applicant’s sole director. By the amended application, the director seeks the Court’s leave under s 198G(3) of the Act to commence and prosecute an application by the company for an extension of time to file a notice of appeal to the trial division of this court against both the extension order and the winding up order.
By the proposed notice of appeal, which was refined during argument, the director seeks to have the company prosecute proposed grounds of appeal as follows:
1The learned Associate Judge erred in purporting to make an order winding up the defendant Donchiod Pty Ltd under ss 459A and 459P of the Corporations Act 2001 (Cth) (“the Act”) in circumstances where the application to wind up had already been dismissed by operation of section 459R (3) of the Act, no order extending the period within which the winding up application must be determined had been made under s 459R(3) within the period prescribed by subsection 459R(1) and the Court accordingly had no jurisdiction to make a winding up order under ss 459A, 459P or otherwise.
2The learned Associate Judge erred in making an order ‘nunc pro tunc’ or retrospectively extending the period provided for in s 459R(1) for the hearing and determination of the plaintiff’s application to wind up the defendant pursuant to Rule 36.07 of the Supreme Court General Civil Procedure Rules (“the slip rule”) or otherwise when:
(a)the application to wind up had already been dismissed by operation of section 459R (3) of the Act,
(b)the requirement in ss 459A and 459P of the Act that a winding up order be made on a subsisting winding up application was substantive and not procedural and could not be cured by an order made ‘nunc pro tunc’ under rule 36.07 or the ‘slip rule’;
(c)the slip rule was not engaged in the circumstances of this case;
(d)as at 2 March 2020, there were no ‘special circumstances’ within the meaning of s 459R(2)(a);
(e)there was room for doubt about what order would have been made on 2 March 2020 had an application for extension of time under s 459R(2) of the Act been made then; and
(f)there was in any event no “accidental slip or omission” to which the ‘slip rule’ could apply.
In summary, grounds 1, 2(a) and 2(b) contend that the extension order was made without jurisdiction and, as a result, the winding up order was also made without jurisdiction. Grounds 2(c) to 2(f) raise factual and discretionary questions on the assumption that the jurisdiction arguments fail and that the ‘slip rule’ could apply.
Should the director have leave to prosecute an application by the company to extend the time for seeking leave to appeal?
Section 198G(1) of the Act prohibits an officer of a company from exercising a function or power of that office while the company is under external administration. But that prohibition is subject to a number of exceptions in s198G(3). Relevantly, the Court under s198G(3)(b) of the Act, may give approval to an officer to exercise a power or function of their office. I am satisfied that this is an appropriate case for the Court to give the director the limited approval he seeks. This is because:
(1) the grounds of the proposed appeals concern the jurisdiction of the Court to make the extension order and the winding up order, and, for the reasons given below, those grounds are arguable;
(2) the director has provided $200,000 as security for the costs of the company and the liquidator in respect of the extension applications and the proposed appeals should leave be granted;
(3) although the company is insolvent, Paul has undertaken to the Court that he will:
(a) pay all the company’s debts within 30 days of an order allowing the appeals; and
(b) make secured provision for the liquidator’s costs, expenses and remuneration, and for the plaintiff’s costs of obtaining the winding up order, pending taxation, assessment or agreement as to the amount of such costs; and
(4) the jurisdiction issue in the proposed appeals raises a question of general importance in insolvency law.
Applicable legal principles: extension of time
Rule 77.06.2(1)(a) of the Rules provides that a notice of appeal from an associate judge shall be served within 14 days of the judgment or order of the associate judge. Rule 77.06.1(6) provides that a judge or associate judge may extend the time for service of a notice of appeal.
There have been many cases which have considered the relevant factors which should be considered by a court in exercising a discretion as to whether to extend the time for filing a notice of appeal. The discretion is at large and should be exercised according to the facts and circumstances of each particular case.[19] Nevertheless, there are a number of factors which are ordinarily considered by courts in exercising the discretion to extend time:
[19]Palata Investments Ltd v Burt & Sinfield Ltd [1985] 1 WLR 942, 947 (‘Palata’); Jackamarra v Krakouer (1998) 195 CLR 516, 539 (Kirby P) (‘Jackamarra’).
(1) the length of the delay and any explanation or reason for it;[20]
(2) the extent of any prejudice suffered by the respondent to the proposed appeal,[21] or to other parties;[22] and
(3) without going into too much detail on the merits, whether the proposed appeal is sufficiently arguable.[23]
[20]Palata [1985] 1 WLR 942, 946.
[21]Ibid.
[22]See eg Hunter Valley Developments Pty Ltd v Cohen (1984) FCR 344.
[23]Jackamarra (1998) 195 CLR 516, 519, 540.
Further, in the case of a proposed appeal against a winding up order after a lengthy period in which the liquidation has proceeded, as here, the court should in my opinion consider whether or not the company is solvent; and whether or not the company’s conduct was or may be contrary to commercial morality or the public interest. These factors are often considered in applications to terminate a winding up order under s 482 of the Act.[24] By analogy, a successful appeal against a winding up order will have the effect of terminating the winding up.
[24]In the matter of MWM Sydney Pty Ltd (in liq) [2016] NSWSC 688 [16]–[21].
The parties agreed that the director’s applications to extend the times for appealing should be heard together with the proposed appeals in the event that the extensions should be granted. This course furthered the overarching purpose under the Civil Procedure Act 2010. It is therefore necessary to consider the merits of proposed appeals in more detail than if the Court was only considering the extension applications.
Is the delay satisfactorily explained?
As appears above, the company obtained legal advice in September 2020 that an appeal would be unlikely to succeed, and did not appeal. More than two years passed until the applications for extensions of time were made. On any view, that is an extraordinary delay and must be fully explained by credible evidence.
The director has deposed in his affidavit material that the delay was caused by a combination of:
(1) The effect of the COVID pandemic and associated lockdowns on his property development business.
(2) His personal circumstances. The director has deposed, in a conclusionary fashion without evidence, that he was involved throughout the delay period in acrimonious matrimonial and family law disputes with his ex-wife—which included freezing orders being made over a number of his properties—and further litigation with his ex-father-in-law. In these circumstances, the director says that, ‘until recently [he] was not in a position emotionally or financially to commence and engage in additional and further legal proceedings’. Moreover, he says that he was ‘struggling to deal with personal health issues’ during the delay period. In these circumstances, the director deposed that he was ‘simply unable to turn [his] mind to, or find the time for, yet another court proceeding’.
(3) The decision in Hrycenko.[25] The director deposes that, when he was informed of this decision in September 2022, he first appreciated there may be a good argument that the associate justice did not have jurisdiction to make the extension orders under the slip rule.
[25][2022] FCAFC 152.
In a later affidavit, the director deposed to other facts which are relevant to the period of delay. In May 2022, the director was provided with a notice from the Australian Securities and Investments Commission (‘ASIC’) under s 206F(1)(b)(i) of the Act, requiring him to demonstrate why he should not be disqualified as a director. In summary, s 206F(1) of the Act provides that ASIC may disqualify a person from managing corporations for up to five years if they have been an officer of two or more corporations which have been wound up in insolvency while they were an officer of the corporations, and the liquidator has filed a report under s 533(1) of the Act. Relevantly, a s 533(1) report is to the effect that the officer concerned may have been guilty of an offence in relation to the company, misapplied or retained company property, been guilty of negligence, breach of trust or breach of duty in relation to the company, or that the company may be unable to pay unsecured creditors more than 50 cents in the dollar. Obviously, the service of the ASIC notice is a serious matter. The director has put it forward as an explanation as to why it is ‘important’ to him to pursue the proposed appeals on the company’s behalf — namely, because he believes that, if the winding up order in this case is set aside, ‘this would impact on ASIC’s power to proceed on the basis set out in the s 206F [notice]’.[26]
[26]This belief is presumably based on the assumption that there would then be only one company of which he was an officer meeting the requirements for the service of the s 206F notice.
Further evidence that the prime motivation for the proposed appeals is to avoid ASIC’s further investigations and a possible disqualification, are the following facts:
(1) A hearing took place before an ASIC delegate on 11 September 2022, and the director is awaiting the delegate’s decision on that matter. From the provisions of s 206F(1)(b)(i) and (c) of the Act, I infer that the purpose of the hearing before the delegate was to provide the director with an opportunity to be heard on the question of whether ASIC is satisfied that a disqualification of the director is justified. One reason why ASIC may be concerned about the actions of the director in relation to the affairs of the company, is that the company transferred two properties for no apparent consideration during the time that the associate justice’s decision on the winding up proceeding was pending. One property was transferred to a company associated with the director, and the other to a company associated with Paul. It was necessary for the liquidator to recover these properties from the companies concerned by bringing proceedings in this Court alleging that the transfers were ‘uncommercial transactions’. Those proceedings were defended until fixed for trial. They were then settled. Following settlement, the properties were transferred back to the company. Another reason for ASIC’s concern may be that the director failed to provide the liquidator with books and records of the company on demand, as required by the Act.
(2) At the hearing of the applications before the Court, Paul proffered undertakings to the Court to pay all of the outstanding debts of the company within 30 days of the proposed appeals being allowed. This undertaking includes the previously disputed debt due to the plaintiff. Further, after discussion with the Court, counsel for the director obtained instructions from Paul that the undertaking would extend to include making secured provision for the liquidator’s estimated remuneration and expenses and for the plaintiff’s estimated costs of and incidental to obtaining the winding up order. When pressed, senior counsel for the director also obtained instructions from Paul acknowledging that it was open to the Court to elevate the proposed undertakings to conditions of any order which might be made setting aside the winding up order.
There is an obvious coincidence of timing concerning the decision in Hrycenko published on 9 September 2022, the hearing before the ASIC delegate on 11 September 2022, and the very late filing of the current applications on 29 September 2022.
The director submits that he has provided a sufficient explanation for the delay—although acknowledging that the explanation is not an excuse. The plaintiff, supported by the liquidator, contends that the delay is both extraordinarily long and insufficiently explained. They submit that the true reason for the belated applications to extend the time by more than two years is the concern by the director, following the hearing on 11 September 2022, that ASIC will disqualify him from managing corporations for a period of up to five years. I note that the evidence before the Court on this issue was not updated from 11 November 2022, and it is not known whether or not a disqualification order has been made. Even if a disqualification order has been made, however, the possibility of a challenge to that disqualification on the basis of a successful outcome in the proposed appeals may be open.
The plaintiff and the liquidator further rely on evidence that the director and his brother Paul, engaged in many and varied dealings with the liquidator on a number of matters during the course of the liquidation, and submit that these dealings show that the director had time to seek an extension of time to appeal if he had chosen to do so. Put simply, they contend that the director chose not to appeal until recent events gave him a reason to seek extensions of time to do so.
Taking the evidence as a whole, I accept the submissions of the plaintiff and the liquidator. In my view, the delay until September 2022 is not credibly explained. During this period, the director had obtained legal advice that an appeal would be unlikely to succeed. He may well have been busy during this period, but that does not explain why he did not seek to appeal within that time. The delay is best explained by the legal advice and recent events referred to above. The explanation concerning recent steps by ASIC to disqualify the director from managing corporations raises policy considerations which are considered below.
The explanation concerning the Hrycenko decision and its possible effect on the reasoning in Elyard is capable of standing in a different position; because if the effect of the reasoning in Hrycenko is that the extension orders were made without jurisdiction, an order extending the time for appeal may, notwithstanding the lengthy delay and other discretionary factors, be appropriate. This is because, while not void but only voidable, an order of a superior court made without jurisdiction may be set aside on appeal as a matter of right.[27]
[27]Cameron v Cole (1944) 68 CLR 571, 591; New South Wales v Kable (2013) 252 CLR 118, 133 [32], 140–1 [56].
If the Court was considering the extension of time applications on their own, it would only consider the merits of the jurisdiction argument to the extent necessary to decide whether it was reasonably arguable.[28] In this case, however, the extension of time applications have been fixed for hearing together with the proposed appeals if the extensions are granted; and the Court has heard all the arguments that the parties wish to put forward on the proposed appeals. It is accordingly appropriate to reach a decision on the jurisdiction question which is sought to be raised by the proposed appeals. If the Court determines that the proposed appeals will fail, the extensions of time may be refused — even if they are arguable. This is especially so where a consideration of other factors supports refusal of an extension of time. For the reasons given below, while the proposed appeals are arguable, I am of the view that the associate justice had jurisdiction to make the extension orders and that no error has been shown in the exercise of his discretion in doing so.
[28]Jackamarra (1998) 195 CLR 516, 519, 540.
Is the company solvent?
In the absence of the undertakings put forward by Paul, the evidence discloses that the company is not solvent. The two properties which were re-transferred to the company following the uncommercial transaction proceedings have been on the market for amounts which, if obtained, would not yield enough proceeds to pay all of the creditors (including the priority debts of the company in respect of the liquidator’s costs, expenses and remuneration and the plaintiff’s costs of and incidental to the winding up). In these circumstances, the director relies on Paul’s undertakings to satisfy the Court that the company will become solvent when the undertakings, or conditions to that effect, are performed.
Will there be relevant prejudice if the extension is granted?
The director seeks to avoid a finding that there will be prejudice if the proposed appeals are allowed and the company comes out of liquidation by relying on Paul’s undertakings. This has a superficial attraction, as all of the creditors will be paid, in circumstances where they otherwise will not. On the other hand, I have considerable concerns about the use of such an undertaking for the purposes of the director in this case; namely, to mount an argument that ASIC has no jurisdiction to disqualify him from managing corporations because, whatever his conduct may have been in relation to the company, it is no longer a company in liquidation and should be taken never to have been so.
In my view there would be prejudice to the public interest if the Court were to accept Paul’s undertakings as a means of overcoming the hurdles of proving that the company was solvent and that there will be no relevant prejudice. In this regard, I note that the liquidator — who has had two years to examine such of the books and records of the company as have been made available to him[29] — has called for proofs of debt; made decisions in relation to the proofs of debt; brought uncommercial transaction proceedings against companies associated with the director and Paul and obtained independent expert evidence that the company was insolvent at the time of the property transfers; and compromised appeals brought by companies associated with the director and Paul against partial rejection of their proofs of debt and against the allowance of the plaintiff’s proof of debt. With the knowledge obtained by these and other processes and inquiries, the liquidator has expressed the view that the company was, at the time of the winding up order, and remains, insolvent. That view is supported by the independent evidence obtained by him for the purposes of the uncommercial transaction proceedings.
[29]The liquidator gave unchallenged evidence that the director and his brother Paul have failed to provide all of the company’s books to the liquidator, as requested and required by the Act.
Merits of the proposed appeals: Is the decision in Elyard plainly wrong?
In Elyard,[30] the winding up application was filed on 18 November 1994. On 21 April 1995 and 26 May 1995, there were orders extending the six month period to later dates together other procedural orders. The extended periods expired on 9 June 1995. On that day, consent orders were made by a registrar substituting the respondent as applicant, adjourning the proceeding for seven days, and making other consequential orders. The solicitor for the substituted applicant had intended to apply on 9 June 1995 for a further order extending the six month period, but forgot to do so. On 16 June 1995, the applicant sought a further extension. On 9 August 1995, a judge of the Federal Court made an order under the Federal Court slip rule, correcting the 9 June 1995 order by the addition of a further order that the six month period be further extended to 30 November 1995. The Federal Court slip rule, O 35, r 7(3) was in the following terms:
A clerical mistake in a judgment or order, or an error arising in a judgment or order from an accidental slip or omission, may at any time be corrected by the Court.
[30](1995) 61 FCR 385.
In these circumstances, the appellant sought to contend, as here, that the judge had no power to make the slip rule order because the plain words of s 459R(2) of the Act only gave power to further extend the six month period if the extension order was made ‘within that period … or as last extended’; namely, on or before 9 June 1995. Moreover, as here, the appellant in Elyard contended that the winding up application stood dismissed when the (extended) period expired, by force of s 459R(3) of the Act.
The Full Court of the Federal Court (Lockhart and Lindgren JJ, Black CJ agreeing) did not accept these contentions. Lockhart J referred to the legislative intention that applications to wind up companies and bankruptcy petitions ‘must be dealt with promptly’;[31] but said that this ‘evident purpose’ did not exclude the Court’s ‘power under the slip rule’ to correct an order made within the relevant period in cases where there was an accidental slip or omission and a corrective order was necessary to avoid injustice — but only where it was clear that an extension order would have been made if it had been sought at the time of the order sought to be corrected.[32] Lindgren J agreed. In his view, the corrected 9 June order operated with full force from that day, which was within the relevant period as extended,[33] so that the mistaken or erroneous failure of the 9 June order to include a further extension of the relevant period ‘is eradicated so that the original judgment or order is treated as having been always made as corrected’.[34]
[31]Ibid 392.
[32]Ibid 390–1 (Lockhart J).
[33]Ibid 391–2.
[34]Ibid 400–1.
In reaching their conclusions, both Lockhart and Lindgren JJ referred to and relied upon the High Court’s decision in L Shaddock & Associates Pty Ltd v Parramatta City Council,[35] where the High Court stated that the effect of an order under the slip rule was that the additional words inserted in the earlier order operated from the date of the earlier order.[36]
[35](1982) 151 CLR 590 (‘Shaddock’).
[36]Elyard (1995) 61 FCR 385, 392.
As the associate justice noted in this case,[37] the correctness of the decision in Elyard has been questioned in subsequent intermediate appeal court cases. Notwithstanding these doubts, the associate justice correctly noted that in none of these cases was it held that Elyard had been wrongly decided.[38] In these circumstances, the associate justice correctly considered that he was bound by Elyard and applied it.[39] The judge referred to the decision in Amorin[40] and noted that it has been disapproved by the Full Federal Court.[41]
[37]Extension reasons [20]–[26].
[38]Ibid [26].
[39]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 151–2 [135] (‘Farah Constructions’).
[40](2008) 73 NSWLR 627.
[41]Extension reasons [22]–[23].
The director contends that the prevailing law has now changed, because the reasoning of the Full Court of the Federal Court in the recent bankruptcy case of Hrycenko[42] is inconsistent with that in Elyard[43] — to the extent that it should cause this Court to hold that the reasoning in Elyard is plainly wrong. On this basis, the director contends that, once the six month period in s 459R(1) of the Act or any extension of that period has expired without the winding up application being determined, the winding up application stands dismissed by force of s 459R(3) and the Court does not have power to retrospectively re-enliven the winding up application by resort to its powers under the slip rule.
[42][2022] FCAFC 152.
[43](1985) 61 FCR 385.
Before considering the reasoning in Hrycenko, it is instructive to first set out the doubts about the reasoning in Elyard in some subsequent Full Court of the Federal Court decisions in bankruptcy cases, concerning analogous legislation fixing the period by which a creditor’s petition must be determined.
The relevant provisions of the Bankruptcy Act 1966 (Cth) are as follows:
52 Proceedings and order on creditor’s petition
…
(4) A creditor’s petition lapses at the expiration of:
(a)subject to paragraph (b), the period of 12 months commencing on the date of presentation of the petition; or
(b)if the Court makes an order under subsection (5) in relation to the petition—the period fixed by the order;
unless, before the expiration of whichever of those periods is applicable, a sequestration order is made on the petition or the petition is dismissed or withdrawn.
(5)The Court may, at any time before the expiration of the period of 12 months commencing on the date of presentation of a creditor’s petition, if it considers it just and equitable to do so, upon such terms and conditions as it thinks fit, order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order.[44]
[44]Emphasis added.
In Griffiths v Boral Resources (Qld) Pty Ltd,[45] a bankruptcy case, the Full Court of the Federal Court said:
we are a little uncomfortable with the view, inherent in Elyard, that the slip rule may be used to extend time notwithstanding the statutory requirement that such order be made within a period of time which has elapsed. However, Elyard concerns the practice of the Court and has now stood for over 10 years without legislative intervention. We are reluctant to reconsider it although it does not directly bind us in applying s 52 of the Bankruptcy Act, to take a different approach would cause substantial confusion in insolvency practice.[46]
[45](2006) 154 FCR 554 (‘Griffiths’).
[46]Ibid 562 [30] (emphasis added).
The Full Court in Griffiths expressed its concern that the reasoning in Elyard may be inconsistent with the policy that insolvency proceedings should be ‘speedily resolved’,[47] and that the decision in Elyard ‘should not be taken as establishing an unlimited power to avoid this statutory policy’.[48]
[47]Ibid 562 [31].
[48]Ibid.
In Flint v Richard Busuttil & Company Pty Ltd,[49] another bankruptcy case, the Full Court (Allsop CJ, Katzmann and Perry JJ) considered a similar case to the present. After expiry of the 12 month period for the determination of a creditor’s petition, an order was made under the applicable slip rule[50] correcting an earlier procedural order which had been made before the 12 month period expired. Later, within the extended period arising from the slip rule order, a judge of the Federal Court made a sequestration order. On appeal, the Full Court decided that the application of the applicable slip rule in such circumstances was reserved for cases where it is ‘clear’ what order would have been made if the issue of an extension of the relevant period had been raised when the order sought to be corrected was made.[51] This reasoning reflected that in Elyard.[52]
[49](2013) 216 FCR 375 (‘Flint’).
[50]Federal Court Rules 2011 r 39.05, which provides the Court may ‘vary or set aside’ a judgment or order after it has been entered for a number of reasons including if (g) there is a clerical mistake in a judgment or order; or (h) there is an error arising in a judgment or order from an accidental slip or omission.
[51]Flint (2013) 216 FCR 375, 383[38]–[39].
[52]Elyard (1985) 61 FCR 385, 392.
The Court in Flint did not accept the basis of the decision in Amorin. [53] The reasoning in Flint for disapproving Amorin was expressly endorsed by a later Full Court in Endresz v Commonwealth.[54]
[53]Flint (2013) 216 FCR 375, 384 [45]–[46].
[54](2019) 273 FCR 286 (‘Endresz’) 55.
In Endresz v Commonwealth,[55] Rares and Markovic JJ emphasised the need for the discretion under the applicable slip rule in such circumstances to be exercised only in the clearest of cases, stating that ‘if there is any room for debate about the outcome of an exercise of the discretion [to extend the life of a creditor’s petition at the time of the order sought to be corrected] it is difficult to see how the applicable slip rule could be engaged.’[56] Moreover, Rares and Markovic JJ stated that as Elyard was concerned with a different statutory regime, it was not binding as to the construction of the Bankruptcy Act and, for these reasons, it was not necessary to consider its correctness.[57] Charlesworth J considered that the reasoning in Elyard was not able to be distinguished from similar questions arising under the bankruptcy regime and noted that ‘it may be necessary’ for the Full Court of the Federal Court to later consider whether Elyard was correctly decided.[58]
[55]Ibid 314 [81].
[56]Ibid.
[57]Ibid 314 [83].
[58]Ibid 329 [145].
In Hrycenko,[59] the creditor’s petition filed on 29 July 2020 was due to lapse on 28 July 2021. On 14 May 2021, the primary judge made consent procedural orders on the papers providing for, among other things, the final hearing to take place on 30 August 2021, which was after the expiry of the relevant 12 month period. When the consent orders were made, the parties and their lawyers did not appreciate that the creditor’s petition would lapse before the proposed hearing date. When the creditor’s petition finally came on for hearing on 29 September 2021, the parties had still not appreciated that the creditor’s petition had lapsed on 28 July 2021. On 28 October 2021, the primary judge gave judgment and made a sequestration order. On 14 January 2022, the primary judge made an order under the applicable slip rule which relevantly provided that the Court may vary or set aside a judgment or order after it has been entered if ‘there is an error arising in the judgment or order from an accidental slip or omission’.[60]
[59][2022] FCAFC 152.
[60]Federal Circuit Court Rules 2001 r 16.05(2)(h).
By the 14 January 2022 order, the primary judge ordered that the 14 May 2021 procedural orders be amended nunc pro tunc by the addition of an order that, pursuant to s 52(5) of the Bankruptcy Act, the time for expiration of the creditor’s petition be extended up to and including 15 July 2022. This date, which was well beyond the date of the sequestration order on 28 October 2021, is explicable on the basis that the power to extend a creditor’s petition is limited under s 52(5) of the Bankruptcy Act to two years from the date of the creditor’s petition.
On appeal, the appellant bankrupt contended that the primary judge had erred in making the sequestration order in circumstances where the creditor’s petition had lapsed, and not been extended, before the making of the sequestration order. The Court unanimously allowed the appeal and set aside the sequestration order. However, the reasoning of the three judges differed.
Bromberg J reasoned as follows. First, that as a matter of plain statutory language, a sequestration order cannot be validly made in the absence of a subsisting creditor’s petition.[61] I note that this unexceptional finding is not directly inconsistent with the reasoning in Elyard, because the extension order was there, as here, made under the slip rule before the making of a winding up order and operated retrospectively. Second, Bromberg J reasoned by analogy with his understanding of the reasoning of the High Court in Emanuele v Australian Securities Commission.[62]
[61]Hrycenko [2022] FCAFC 152, [8].
[62](1997) 188 CLR 114 (‘Emanuele’).
In Emanuele, the High Court considered ss 459A and 459P of the Act, which then provided that the Australian Securities Commission ‘may only’ make an application for the winding up of a company on the ground of insolvency if the Commission obtains the leave of the Court to make such an application. The Commission filed an application without first seeking the Court’s leave and obtained a winding up order. On appeal, the Full Court took the view that it had the power to make a corrective order under the Federal Court equivalent of the slip rule, even after the making of a winding up order. An order was made nunc pro tunc granting leave to the Commission to make the application. On appeal to the High Court, the appellants contended that it was not open to the Full Court to have made that order. The High Court split, with the majority (Dawson, Toohey and Kirby JJ) taking the view that there was jurisdiction to make the winding up order, even though it was procedurally irregular because of the absence of leave. This was because the irregularity was procedural rather than jurisdictional and could later be cured.[63]
[63]Emanuele (1997) 188 CLR 114, 125 (Dawson J), 128–32 (Toohey J), 156 (Kirby J).
The minority reached a different conclusion. Brennan CJ considered that the leave requirement was not ‘merely procedural’,[64] but was a ‘fundamental irregularity’.[65] Gaudron J held that the necessary leave could be given after the filing of a winding up application by the ASC - but only before or at the time a winding up order was made, and not afterwards as in that case.[66]
[64]Ibid 122.
[65]Ibid 124.
[66]Ibid 136-9.
In Hrycenko, Bromberg J relied in particular on a statement in the dissenting judgment of Gaudron J[67] that:
It follows, in my view, that although leave to make a winding up application may be granted at any point prior to, or simultaneously with, the making of a winding up order, it may not be granted thereafter, whether by the judge who made the order or by a court exercising appellate jurisdiction. More precisely, until leave has been granted there is no application for the purposes of s 459A and, thus, no application on which a winding up order can be made. That conclusion is directed by the nature of the discretion which s 459P(2), (3) and (4) confer. And no different view is suggested by s 467(3)(b). Although s 467(3)(b) allows for notices and steps required by the Law to be dispensed with, it does not allow for the making of a winding up order in the absence of a winding up application. And as already indicated, the effect of s 459A, when read in the light of s 459P(2) and (5), is that, until leave is granted, there is no application upon which a winding up order can be made.[68]
[67]Hrycenko [2022] FCAFC 152, [15] (Bromberg J).
[68]Emanuele (1997) 188 CLR 114, 139 (Gaudron J) (emphasis added).
On the basis of this statement by Gaudron J, Bromberg J concluded that ‘the invalidity arising because a sequestration order was made in the absence of a subsisting creditor’s petition cannot be cured by an order made under the slip rule to retrospectively enliven the creditor’s petition’.[69]
[69]Hrycenko [2022] FCAFC 152, [20](emphasis added).
Moshinsky J based his decision on the need for it to have been clear that, had an extension of time been sought on the day the order sought to be corrected was made, an extension of time would unarguably have been granted.[70] This approach reflected that in Elyard,[71] Flint,[72] and Endresz.[73] Moshinsky J held that it was ‘not clear what order would have been made had the creditor made an application on 14 May 2021 for an order under s 52(5) [of the Bankruptcy Act] that the period at the expiration of which the petition would lapse be extended.’[74] As Moshinsky J decided the case on this issue, he did not consider it necessary to consider whether the slip rule could be exercised to make an order extending the period of a creditor’s petition after a sequestration order had been made.[75]
[70]Ibid [44], [46]–[52].
[71]Ibid [33], referring to Elyard (1985) 61 FCR 385, 390–1 (Lockhart J): ‘The slip rule applies where the proposed amendment is one upon which no real difference of opinion can exist. It does not apply where the amendment is a matter of controversy …’.
[72]Ibid [42], referring to Flint (2013) 216 FCR 375 at [38] ‘it is not clear what course would probably have been taken and … not clear that an order would have been made at the time extending the life of the creditor’s petition’.
[73]Ibid [43], referring to Endresz (2019) 273 FCR 286 at [81]: ‘if there is any room for debate as to the outcome of an exercise of the discretion under s 52(5) it is difficult to see how the slip rule could be engaged’ (Rares and Markovic JJ).
[74]Ibid [44]. See also [46]–[52].
[75]Ibid [53].
McElwaine J came to a similar conclusion to Bromberg J. In his Honour’s view ‘the existence of a creditor’s petition that has not lapsed is a jurisdictional condition to the exercise of the power to make a sequestration order, ’[76] and if a sequestration order is made in the absence of a subsisting creditor’s petition ‘the slip rule cannot be retrospectively applied to invest jurisdiction that did not exist’.[77] In his Honour’s view, this conclusion was supported by several reasons.
[76]Ibid [99].
[77]Ibid [135], [142].
First, McElwaine J considered that the language of the statute ‘is clear and harmonious’[78], such that a lapsed petition is not relevantly one that has the statutory character of a creditor’s petition upon which a sequestration order is capable of being made. It ceases to have effect as a petition.[79]
[78]Ibid [99].
[79]Ibid [99]–[100].
Second,[80] his Honour considered that his reasoning was consistent with that of the High Court in Cameron v Cole,[81] and the judgments of Brennan CJ (in dissent) and Toohey J in Emanuele.[82]
[80]Ibid [102]–[103], [87]-[97]
[81](1944) 68 CLR 571.
[82](1997) 188 CLR 114.
Third, his Honour considered that the language of the Bankruptcy Act was ‘tightly conditional’, and ‘jurisdictional language’, in that it confines the 12 month period, provides that the discretion to extend it is required to be made before its expiration, and limits the maximum period of any extension.[83]
[83]Hrycenko [2022] FCAFC 152, [104].
Fourth,[84] McElwaine J relied on the High Court decisions in Emanuele,[85] and David Grant & Co Pty Ltd v Westpac Banking Corporation,[86] as supporting the conclusion that temporal requirements such as those under consideration ‘may’ be ‘jurisdictional’. In particular, his Honour quoted and agreed[87] with the statement by Gummow J (Brennan CJ, Dawson, Gaudron and McHugh JJ agreeing) in David Grant & Co Pty Ltd v Westpac Banking Corporation:
Here, the phrase ‘an application may only be made within 21 days’ should be read as a whole. The force of the term ‘may only’ is to define the jurisdiction of the court by imposing a requirement as to time as an essential condition of the new right conferred by s 459G. An integer or element of the right created by s 459G is its exercise by application made within the time specified.[88]
[84]Ibid [105]–[106].
[85](1997) 188 CLR 114, 130-1.
[86](1995) 184 CLR 265 (‘David Grant’), 277.
[87]Hrycenko [2022] FCAFC 152 [105].
[88]David Grant (1995) 184 CLR 265, 277.
In McElwaine J’s view, the reasoning of Gummow J in David Grant was ‘of itself compellingly persuasive by analogy with the scheme of ss 43 and 52 of the Bankruptcy Act to conclude that a petition which has not lapsed is a jurisdictional prerequisite to the making of a sequestration order.’[89]
[89]Hrycenko [2022] FCAFC 152 [106].
Finally, McElwaine J relied on the policy consideration that there should be no uncertainty surrounding the time during which a creditor’s petition is pending.[90] His Honour referred to the discussion of the Full Court in Re Young,[91] where the Full Court referred to the importance of the date of presentation of a creditor’s petition and the policy consideration for limiting the time during which a petition remains alive and capable of giving rise to a sequestration order.[92] In McElwaine J’s view, the reasoning of the Full Court in Re Young reinforced his conclusion that a subsisting petition is a jurisdictional prerequisite to the making of a sequestration order.
[90]Ibid [107], referring to Re Young; ex parte Smith (1985) 5 FCR 204, 206–8.
[91]Re Young; ex parte Smith (1985) 5 FCR 204.
[92]Hrycenko [2022] FCAFC 152, [107], referring to Re Young; ex parte Smith (1985) 5 FCR 204, 207–8.
Notwithstanding this reasoning, and while noting the doubts which have been cast upon the correctness of the decision in Elyard,[93] McElwaine J did not expressly state in his reasons that he agreed with those criticisms or that Elyard should be regarded as wrong. His Honour noted that the appellant in Hrycenko did not submit in that case that Elyard was wrongly decided or that ss 52(4) and (5) of the Bankruptcy Act operated ‘as an exclusive code so as to displace the potential application of the slip rule’.[94] His Honour noted that the appellant’s submission in Hrycenko was, despite the broad wording of the appeal grounds:
that the slip rule power was simply inapplicable in this case for the reason that it could not be engaged to correct the jurisdictional defect that existed when the sequestration order was made. In that way, this case is to be contrasted with others that have considered the potential application of the slip rule to extend the life of a creditor’s petition before the making of a sequestration order.[95]
[93]Ibid [113]–[115].
[94]Ibid [124].
[95]Ibid [124] (emphasis added).
Relevantly, McElwaine J then dealt with the question of jurisdiction to make the slip rule order in that case, on the express basis that the slip rule order was made after the sequestration order. In this context, McElwaine J considered that ‘the fundamental difficulty’ with the later slip rule order in Hrycenko was that it constituted ‘an attempt to cloak the court with jurisdiction [which is] beyond that power of the [Federal Court] slip rule’.[96] His Honour then reviewed cases to this effect and concluded,
Each of these cases stand as authority for the general proposition that, despite the width and flexibility of slip rule provisions, they are not able to be deployed retrospectively to confer jurisdiction which did not exist in a court … when final orders were made.[97]
McElwaine J then summarised his essential reasoning by reference to the emphasised portion of the above quote.[98]
[96]Hrycenko [2022] FCAFC 152, [128], quoting Preston CJ in El Maha Pty Ltd v Huajun Investments Pty Ltd (2018) 365 ALR 86, [272] (Basten and Leeming JJA agreeing).
[97]Ibid [134] (emphasis added).
[98]Ibid [135], [142].
This review of the essential reasoning in the three judgments in Hrycenko does not, as contended by the director, reveal any direct inconsistency with Elyard. None of the three judges expressly stated that the reasoning in Elyard was wrong or plainly wrong. The facts in this case are clearly distinguishable from those considered in Hrycenko, and McElwaine J noted that the appellant’s argument in that case expressly stated that it was unnecessary to decide if Elyard was wrongly decided, because the bankruptcy cases which have applied it concerned the distinguishable feature that the extension order was made before the sequestration order. Although both Bromberg and McElwaine JJ reasoned in terms of jurisdiction to make a retrospective extension order, they did so in the particular factual situation that the creditor’s petition had lapsed and there was no extension order in operation at the time of the sequestration order. That is not the case here and was not the case in Elyard, Flint or Endresz, where the extension orders were made before the final orders.
It follows that this Court is bound to apply the reasoning in Elyard unless convinced that it is plainly wrong.[99] The director contends that, even if distinguishable from the circumstances in Elyard and here, the reasoning of Bromberg and McElwaine JJ in Hrycenko should be applied by analogy to the circumstances of a case such as the present and that this should lead the Court to conclude that the reasoning in Elyard is plainly wrong. The director relies on the plain meaning of the text of sub-ss 459R(2)(b) and 459R(3) of the Act. He contends that the associate justice did not have jurisdiction to extend the six month period provided for in s 459R(1) of the Act because s 459R(2)(b) only gives that jurisdiction if the extension order is made within the six month period and, as it was not, the winding up application stood dismissed by force of s 459R(3). This submission invites attention to the reasoning of McElwaine J in Hrycenko, where he spoke in terms of the relevant statutory provisions being expressed in ‘tightly conditional’ and ‘jurisdictional language’,[100] and relied on the reasoning of Gummow J in David Grant.[101]
[99]Australian Securities Commission v Marlborough Goldmines (1993) 177 CLR 485, 492; Farah Constructions Pty Ltd (2007) 230 CLR 89, 151–2 [135].
[100]Hrycenko [2022] FCAFC 152, [104].
[101]Ibid [105].
Like other judges before me, although I am not convinced that it is plainly wrong, I also have some doubts about the reasoning in Elyard. The reasoning depends on the identification of an order within the six month period or any previously extended period to which the slip rule can attach — and usually an order approaching the end of that period. This may lead to different outcomes in two cases where the only factual difference between them is whether there is an order to which the slip rule could be applied. In this sense, there is a degree of randomness at play when a matter so fundamental as the existence of jurisdiction is at issue.
The reasoning in Elyard sits somewhat uneasily with the tightly conditional language of s 459R(2)(b) of the Act and the clear language of s 459R(3). However, the rigours of this language may be ameliorated by s 70 of the Act, which provides that where the Act confers a power to extend the period for doing an act, the power may be exercised even if the period, or the period as last extended, has ended. As the High Court pointed out in Aussie Vic Plant Hire Pty Ltd v Esanda Corporation Ltd,[102] s 70 is, when read with the definition of “extend” in s 9 of the Act, subject to a contrary intention appearing in the Act.[103] That decision concerned the power to extend the time for compliance with a statutory demand after the previously extended time had expired. The High Court held there was a contrary intention to s 70 applying because the effect of non-compliance with a statutory demand is that the court must presume that the company is insolvent; and that presumed insolvency has consequences in several circumstances.[104] Whether the reasoning in that decision is applicable by analogy to the facts of the present case was not the subject of argument before me. Indeed, no party relied on Aussie Vic. Consequently, this is not the occasion to consider this issue further.
[102](2008) 232 CLR 314 (‘Aussie Vic').
[103]Ibid 323.
[104]Ibid 325-7.
The reasoning in Elyard may also be inconsistent with the policy of speedy resolution underlying pt 5.4 of the Act.[105] I say may be inconsistent because it is arguable that the policy is consistent with the application of the slip rule in circumstances such as the present. This is because the discretion to apply the slip rule is controlled by the need for special circumstances to be established under s 459R(2)(b) and for the extension order to be clearly appropriate to avoid injustice.[106] Further, the policy of expedition is clearly a factor to be taken into account in the exercise of the discretion.
[105]Aussie Vic (2008) 232 CLR 314, 324-5.
[106]Elyard (1985) 61 FCR 385, 392.
Even if I thought the reasoning in Elyard was plainly wrong, I would be reluctant, as a single judge, to refuse to apply it. This is because it is a principled and carefully worked out decision of an intermediate appellate court which has been repeatedly applied by judges and intermediate appellate courts, has served a useful purpose in avoiding injustice, and is productive of convenience to busy courts and parties in contested matters. In such circumstances, intermediate appellate courts, more so single judges, should be very cautious before departing from an earlier decision.[107] Moreover, I agree with the statement of the Full Court of the Federal Court in Griffiths,[108] that Elyard concerns the practice of courts in relation to the operation of the analogous provisions of the Bankruptcy Act and the Act, and has stood since 1995 without legislative intervention. To now take a different approach would cause ‘substantial confusion in insolvency practice’.[109]
[107]Gett v Tabet [2009] NSWCA 76; (2009) 254 ALR 504, 566-7 [296]–[201]; Pitmann v Commissioner of Taxation (2021) 289 FCR 287, 292-6 [10].
[108](2006) 154 FCR 554, 562 [30].
[109]Ibid.
It follows that the proposed challenge to the Court’s jurisdiction to make the extension order is, although arguable, rejected. In these circumstances, I turn to consider whether the discretion under the slip rule was properly exercised by the associate judge in this case.
Merits of proposed appeals: Should the extension order have been made under the slip rule?
In the event that the Court decides that the associate justice had jurisdiction to make the extension order under the slip rule, the director contends that there were no special circumstances for such an order — as required by s 459R(2)(a) of the Act — as there were other possible orders that were available to be made instead of extending the six month period.
The director’s submission in this regard is based on the accepted requirement that an extension order under s 459R(2) of the Act should not be made under the slip rule in circumstances such as the present except in the clearest of cases. The language used has been of varying strictness, such as:
(1) ‘upon which no real difference of opinion can exist’;[110]
(2) where ‘it is not clear what course would probably have been taken’;[111] or
(3) ‘if there is any room for debate as to the outcome of an exercise of the discretion … it is difficult to see how the slip rule could be engaged’.[112]
[110]Elyard (1985) 61 FCR 385, 390–1.
[111]Flint (2013) 216 FCR 375, 383 [38].
[112]Endresz (2019) 273 FCR 286, 286 [81].
The director refers to the possibility of the associate justice, had he been informed of the pending expiry of the six month period at the time he reserved his judgment on 2 March 2020:
(1) stating that he would put other work aside and deliver his reasons and make orders within the six month period expiring on 3 April 2020;
(2) making final orders within the six month period and giving reasons later; or
(3) extending the six month period for a lesser period than that ordered in the extension orders.
In my view, the director’s contentions as to the possible orders which could have been made by the associate justice on 2 March 2020 should be rejected. The facts of this case called for the exercise of the discretion under the slip rule in the manner ordered by the associate justice. Before turning to the facts of this case, it is instructive to look at some of the other cases.
The director places reliance on the decision of Brooking J (Charles and Chernov JJA agreeing) in Sands & McDougall Wholesale Pty Ltd (in liq) v Commissioner of Taxation (No 2),[113] where he applied the statement by Lockhart J in Elyard that the slip rule applies where the proposed amendment to an earlier order is one upon which ‘no real difference of opinion can exist [and] does not apply where the amendment is a matter of controversy’.[114] In that case, an offer of compromise was mistakenly not drawn to the attention of the Court of Appeal when disposing of an appeal. An application by the successful party under the slip rule for an order that costs be awarded on a solicitor–client basis because an offer of compromise had not been accepted was refused, even though the relevant rule provided an entitlement to solicitor–client costs subject only to contrary order. In the circumstances of the case, Brooking J was not satisfied with the ‘necessary degree of conviction’[115] that an award of solicitor–client costs, rather than a contrary order, would necessarily have been made had the matter been drawn to the attention of the Court of Appeal.
[113][1999] 2 VR 114.
[114]Ibid 119, quoting Elyard 1985) 61 FCR 385, 390–1.
[115]Ibid 121.
Elyard was a clear case for the making of a slip rule order. On 9 June 1995, the previously extended period for determination of the winding up application was to expire. On that day, another creditor was substituted as the applicant and the application was adjourned for seven days to 16 June 1995. The solicitor for the applicant had intended to apply for a further extension at the hearing on 9 June 1995 but forgot. It was no doubt the intention of the applicant and the Court that the application would remain alive until at least 16 June 1995. On 16 June 1995, an application was made to extend the period, and a later order was made under the slip rule amending the 9 June orders to add a further extension to 30 November 1995. As Lindgren J commented, ‘the parties and the Court’ intended on 9 June 1995 that the application would ‘remain alive for a further seven days’ and not stand dismissed.[116]
[116]Elyard 1985) 61 FCR 385, 405.
In Flint, the appeal was allowed because it was not a clear case for the exercise of the slip rule discretion. The 12 month period of the creditor’s petition expired on 23 November 2012. A procedural order was made for the filing of written submissions on 29 August 2012. After the creditor’s petition had expired, on 7 December 2012, a Federal magistrate made an order under the applicable slip rule amending the 29 August order so that it included an extension of the life of the creditor’s petition. Within that extended period, a judge made a sequestration order. The bankrupt successfully appealed to the Full Court. The Full Court disagreed with the Federal magistrate’s conclusion in making the slip rule order that there was no doubt that the order would have been made on 29 August 2012 if an application to extend the life of the petition had been made on that day. The Full Court reasoned that there was almost three months remaining before the petition would lapse and in that circumstance it was ‘not clear what course would probably have been taken’.[117] Consistent with the policy of expedition in insolvency matters, the court postulated that shortened procedural directions could have been made and a trial fixed on a date before the creditor’s petition lapsed.
[117](2013) 216 FCR 375, 383 [38].
In Endresz,[118] about two months before the creditor’s petition lapsed an order was made in chambers by a Federal Circuit Court judge re-fixing the date for the hearing of the petitions, from about one month before expiry of the petitions until about one month after the expiry of the petitions. The judge making the orders in chambers clearly did not appreciate that the petitions would expire before the adjourned hearing dates and made the orders for unexplained reasons without hearing from the parties. The petitioner applied under the slip rule for extension orders by varying the relisting orders. The applications were granted. The slip rule orders were set aside on appeal.
[118](2019) 273 FCR 286.
Rares and Markovic JJ (CharlesworthJ J agreeing) delivered the principal judgment. Relevantly, they held that it could not be concluded that, had the judge who made the re-fixing orders in chambers been asked to exercise the discretion to extend the 12 month period of the creditor’s petition, the discretion ‘could only have been exercised in one way’.[119] In circumstances where there was no evidence as to why the hearing was re-fixed, and where two months remained before the petition lapsed, examples of other orders which could have been made to accommodate the pending expiry of the petition were given: ‘having regard to the factors which were required to be taken into consideration upon an application under s 52(5) of the [Bankruptcy] Act and the policy underlying the statutory requirement that a creditor’s petition be dealt with expeditiously.’[120] The examples included resolving the scheduling conflict by maintaining the original hearing date; exploring the possibility of referral of the hearing of the creditor’s petitions to another judge; or transferring the matters to the Federal Court for hearing.
[119]Ibid 314 [84].
[120]Ibid 316 [89].
The approach in these cases show that a fact specific enquiry is called for when exercising the discretion to make orders under the slip rule in cases such as the present. Each case will depend upon its own facts.
In this case, the associate justice was well aware that his discretion under the slip rule to correct his earlier order to include an extension order should only be exercised in clear cases,[121] and with due regard to the policy that insolvency proceedings should be speedily resolved.[122] In this context, the associate justice gave detailed consideration to what he would have done on 2 March 2020 if an application had then been made to extend the period of the winding up application to enable him to reach a decision and complete reasons for judgment. The associate justice stated in his reasons:
27It would be fair to say that on the hearing of 2 March 2020, and referring to the order obtained on that date, neither the parties nor the Court turned their minds to the issue of the expiry of the winding up application on 3 April 2020. Given that on 2 March 2020, the hearing had been completed save for the requirement of filing further submissions, if the parties or myself had turned our minds to the volume of the work that I was required to undertake, in general, it would have almost gone without saying that any application for extension would have been granted such that the discretion to extend could only have been exercised in one way. If, however, the defendant had opposed such an application, as it now does, it is clear that the interests of justice would have dictated that an extension of time be permitted to enable me to publish reasons and an order.[123]
[121]Extension reasons, [22].
[122]Ibid [24].
[123]Ibid [27] (emphasis added).
The associate justice concluded his reasons with a summary of his reasons for exercising his discretion to make the extension orders under the slip rule:
32I am satisfied that I have the power under the slip rule to correct the orders of 2 March 2020 by inserting an order to extend time under s 459R. I am satisfied that the issue was not raised as a result of an accidental slip or omission by either the practitioners or the Court. I find that had the issue been raised before me on 2 March 2020, an application under s 459R(2) would have been made and, for the reasons set out in paragraph 33 hereof, would have been granted. To the extent that I am required to exercise discretion under the slip rule, I do so in favour of the plaintiff on the following bases:
(i)the order made on 2 March 2020 was made at a time relatively close to the expiry of the winding up application;
(ii)it goes without saying that if the application had been made at the relevant time, and my attention had been drawn to the expiry date, I would have allowed more time given the workload of the Court in March 2020. I make the observation that, notwithstanding that COVID-19 ultimately impacted upon the length of time required for the judgment, it can only be considered an exacerbating factor, which was not foreseeable on 2 March 2020;
(iii)relitigating a subsequent application based upon a new statutory demand would lead to an outcome at the expense of the Court’s resources thereby causing injustice; and
(iv)the above factors outweigh the underlying policy of s 459R to determine a winding up application expeditiously.
33I am also satisfied that there were special circumstances on 2 March 2020 that justify the exercise of the discretion to extend the winding up application under s 459R(2), namely that:
(i)the hearing had been completed save for the filing of further submissions and a determination to be handed down by myself; and
(ii)more time was required for judgment given the workload of the Court.[124]
[124]Ibid [32]–[33] (emphasis added).
The associate judge expressly recognised that the extension order could not have been made unless he had formed the view there were special circumstances.[125] Special circumstances are those which are not ordinary, usual or common.[126] The director contends that there were no special circumstances here, because it was an ordinary situation that a contested winding up application was heard about a month before expiry of the six month period. I do not accept that contention in the circumstances of this case. In my view, the facts stated by the associate justice were special circumstances for the granting of an extension of time. There is no reason to doubt the associate judge’s assessment that, on 2 March 2020, his workload was such that he needed more than one month to complete his reasons for judgment.[127] The matter had some complexity, there was a significant amount of evidence to assess, and the judgment when delivered was 48 pages. At the hearing was complete, that was all that remained to be done. The associate justice obviously intended at the time that the winding up application would remain alive until his judgment was complete, so that his work in writing the judgment would not be wasted.
[125]Ibid [33].
[126]Jackamarra (1998) 195 CLR 516, 539; Expile Pty Ltd v Jabbs Excavations Pty Ltd [2022] NSWSC 851, [5].
[127]The Court takes judicial notice of the fact that the associate justice heard many corporate insolvency cases, all of which were subject to the policy of expedition.
It may be thought that, had the associate judge been asked to extend the six month period during or at the conclusion of the trial on 2 March 2020, he would have extended the period for a lesser period than he later did. This is because, as the associate judge noted, the COVID-19 pandemic was not foreseeable on 2 March 2020. No doubt, as the associate judge explained, the pandemic ultimately impacted as an exacerbating factor in the delay in him delivering his reasons for judgment. In my view, the correct time to consider the appropriate period of the extension was on 14 August 2020, when the associate justice delivered his reasons for making the extension order. The effect of the pandemic on the otherwise busy workload of the associate justice was then a known factor, which allowed the associate justice to fix the period of the extension to 4 September 2020. In my view, it goes without saying that, if a shorter period of extension had initially been granted on 2 March 2020, the period would have been further extended as a matter of course if the associate justice was unable to complete his reasons for judgment in the period of the initial extension.
I do not accept the director’s contention that it was reasonably open to the associate justice to make an order winding up the company in insolvency with reasons to follow at some indeterminate time, as the solvency of the company was the key issue in the judgment which was reserved.
Conclusion and orders
For the above reasons, I have concluded that the director should have leave under s 198G3(b) of the Act to commence and prosecute applications by the company to extend the time for seeking leave to appeal, but that the extension of time applications should be refused on the grounds that: the delay is not satisfactorily explained; the company is and was at all relevant times insolvent; acceptance of the undertakings would be contrary to public policy; the evidence discloses serious questions concerning the commercial morality and compliance with the Act by the director in relation to the company; and, even though the proposed appeals are arguable, they would not succeed. I will hear the parties as to costs.
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