SFL/Piletech (EA) Pty Ltd (in liq) v Commissioner of Taxation
[2020] FCA 1841
•17 December 2020
FEDERAL COURT OF AUSTRALIA
SFL/Piletech (EA) Pty Ltd (in liq) v Commissioner of Taxation [2020] FCA 1841
File number: NSD 1086 of 2020 Judgment of: MARKOVIC J Date of judgment: 17 December 2020 Date of publication of reasons: 22 December 2020 Catchwords: CORPORATIONS – application for orders under s 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act) extending the time for making an application under s 588FF(1) of the Act – where defendant sought to be carved out of any such orders – application allowed Legislation: Corporations Act 2001 (Cth), s 588FF Cases cited: Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2015) 254 CLR 489
McGrath v National Indemnity Company [2004] NSWSC 391; (2004) 182 FLR 309
Rodgers v Commissioner of Taxation (1998) 88 FCR 61
Sydney Recycling Park Pty Ltd v Cardinal Group Pty Ltd (in liq) [2016] NSWCA 329
Vaughan v Catanzariti, in the matter of Italian Prestige Jewellery Pty Limited (In Liq) [2018] FCA 1403
Division: General Division Registry: New South Wales National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Number of paragraphs: 47 Date of hearing: 17 December 2020 Solicitor for the Plaintiffs: Ms C Perry of Pure Legal Solicitor for the Defendant: Mr D Olthof of Craddock Murray Neumann ORDERS
NSD 1086 of 2020 BETWEEN: SFL/PILETECH (EA) PTY LTD (IN LIQUIDATION) ACN 069 670 417
First Plaintiff
MICHAEL GREGORY JONES IN HIS CAPACITY AS LIQUIDATOR OF SFL/PILETECH (EA) PTY LTD (IN LIQUIDATION) ACN 069 670 417
Second Plaintiff
AND: COMMISSIONER OF TAXATION
Defendant
ORDER MADE BY:
MARKOVIC J
DATE OF ORDER:
17 DECEMBER 2020
THE COURT ORDERS THAT:
1.Subject to Order 2 below, pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act), the time in which any of the plaintiffs may bring an application under s 588FF(1) of the Act be extended to 31 December 2021.
2.Pursuant to s 588FF(3)(b) of the Act, the time in which any of the plaintiffs may bring any application under s 588FF(1) of the Act against the Commissioner of Taxation be extended to 30 June 2021.
3.Costs of the plaintiffs’ interlocutory application filed on 12 November 2020 be costs in the cause.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
MARKOVIC J
On 17 December 2020, on the application of SFL/Piletech (EA) Pty Ltd (in liquidation) (SFL) and Michael Gregory Jones in his capacity as liquidator (Liquidator) of SFL (collectively, plaintiffs), I made orders pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act) extending the time in which the plaintiffs may bring an application under s 588FF(1) of the Act against the Commissioner of Taxation (Commissioner) to 30 June 2021 and against any other party to 31 December 2021.
These are my reasons for making those orders.
BACKGROUND
SFL is a wholly owned subsidiary of Steel Foundations Limited (Steel Foundations) and was part of a group of companies which includes Steel Foundations, Significant Pty Ltd, Piletech Pty Ltd (Piletech), Screw In Technologies Pty Ltd, Steel Foundations Technology Pty Ltd, SFL/Piletech (Eastern Div) Pty Ltd and SFL/Piletech (WA) Pty Ltd (collectively, SFL Group).
On 1 December 2017 Boral Constructions Material Group Ltd commenced a proceeding in the Supreme Court of New South Wales seeking an order for the winding up of SFL.
On 22 December 2017 David James Hambleton and James Marc Imray of Rogers Reidy Chartered Accountants, Brisbane were appointed as voluntary administrators of each of the companies in the SFL Group including SFL.
On 23 February 2018 the Liquidator was appointed to SFL.
On 28 February 2018 Messrs Hambleton and Imray were appointed as liquidators of each of the other companies in the SFL Group (Group Liquidators). Since that time, with the exception of SFL, Steel Foundations and Piletech, the companies in the SFL Group have been deregistered.
SFL’s creditors and available assets
As at the date of the appointment of the Liquidator, there was no available cash at bank, real property or equipment. SFL’s assets were limited to stock, debtors and retentions.
Upon his appointment, the Liquidator became aware that the National Australia Bank (NAB) had security over all of the companies in the SFL Group. In November 2018 the debt to NAB was extinguished.
The Liquidator has identified one further potential secured creditor of SFL. His investigations in relation to the security position of, and amount owing to, that creditor are ongoing.
The total of claims by unsecured creditors is $15,695,877.45, comprising claims by ordinary unsecured creditors of $1,983,668.37 and the balance being claimed by related entity creditors.
Since the date of his appointment, the Liquidator has collected the sum of $376,330.41 from debtors and retentions.
Investigations undertaken by the Liquidator
The Liquidator’s investigations to date into SFL and, in particular, in relation to potential voidable transaction claims have been limited. The Liquidator explains that this is in large part because of the difficulties he has encountered in obtaining the books and records of SFL.
Since his appointment, the Liquidator has taken the following steps:
(1)in mid-2018, in response to a request by the Liquidator, the Group Liquidators provided 127 boxes of documents relating to SFL. Many of the records contained therein pre-dated 2016, did not relate to current projects and were irrelevant to the Liquidator’s investigations. There were only limited records relating to creditors and none that would assist investigation by the Liquidator of potential voidable transactions;
(2)the Liquidator was provided with what was considered to be the current server for the SFL Group but, upon review, he was informed that it only contained records relating to the period prior to 2016. When the Liquidator’s staff inquired whether the Group Liquidators had another server, they indicated they did not. The Liquidator has concluded that the Group Liquidators failed to secure the current server of the SFL Group;
(3)the Liquidator received some further limited data from the Group Liquidators in relation to creditors but that material did not include records that would assist him in his investigations;
(4)communications with a director of SFL did not result in the production of the email server for the company or any communications with unsecured creditors;
(5)the Liquidator’s investigation of the internal Reckon accounting system, which I infer was used for SFL, revealed intermingled banking and accounting records of Steel Foundation. The Liquidator therefore considered this to be an unreliable source of information. Although the Reckon accounting system provided historical data for the relevant period and enabled the Liquidator to perform a review of possible preference payments, he is of the view that, without obtaining records for the relevant creditors who received payments, he is unable to determine if the records in the accounting system are complete and accurate;
(6)as the Liquidator was not appointed to the SFL Group, the Australian Taxation Office (ATO) took the view that he was not entitled to the documents he sought from it. The Liquidator has unsuccessfully attempted to obtain documents from the ATO for some time;
(7)the Liquidator ascertained that there may be records located at Grace Sydney, Melbourne and Brisbane storage facilities. Despite attempts to obtain that material, he has only received limited records; and
(8)the Liquidator made inquiries of SFL’s external accountants requesting them to produce any books and records but, I infer, has not received any material in response.
Despite the limited information available to the Liquidator, based on the review of the records that are available, he has been able to identify that payments totalling $1,163,444.18 were made to 21 trade creditors during the relation-back period. That is, in the six month period ending on 1 December 2017. The Liquidator has sent a letter to each of those creditors in which he has set out the basis of the alleged claim he believes he has for recovery of payments made by SFL to those creditors as voidable payments. The Liquidator has received a response from six of those creditors who, in response, raised reliance on the “good faith defence” under s 588FG of the Act, requested additional time to provide a response and/or provided information in relation to the allegations raised by the Liquidator.
The Liquidator also believes that, subject to further investigation, he may have a claim against the former directors of SFL pursuant to s 588FH of the Act to the extent that payments made by SFL to its trade creditors discharged their liability or that of related entities under personal guarantees provided by the directors to those creditors.
SFL’s solvency
As part of his investigation and based on the material available to him, the Liquidator has prepared a summary of SFL’s financial performance for the period from 1 June 2017 to 31 December 2017 and of the SFL Group’s financial position for the period from 30 June 2016 to 31 December 2017. The Liquidator is of the opinion that:
(1)in the six month period from 1 June 2017 to 31 December 2017, SFL accumulated losses of $1,098,292;
(2)the SFL Group had insufficient current assets to meet its current liabilities in the period from 30 June 2016 to 31 December 2017;
(3)the SFL Group did not maintain current assets to meet its current liabilities from at least 30 June 2016; and
(4)SFL was insolvent from at least 30 June 2016 and indisputably by 1 June 2017.
The Liquidator has also identified numerous payments defaults by, and enforcement actions against, SFL as well as other indicia of insolvency which support his conclusion that SFL was insolvent from at least 30 June 2016 and during the whole of the relation-back period.
Notification of the application
By email dated 20 November 2020 the Liquidator notified what he described as “each potential creditor”, which I understand to be a reference to the 21 trade creditors referred to at [15] above as well as the Commissioner, of the first intended hearing date for this application on 24 November 2020.
The matter was ultimately heard on 17 December 2020. At that time there was no appearance by or on behalf of any of those parties, other than the Commissioner.
Next steps
The Liquidator’s lack of funding coupled with the inability to obtain adequate books and records for SFL has been a critical factor in delaying commencement of any proceeding. However, the recovery by the Liquidator of debts has recently provided him with some limited funds such that he has been able to pay legal costs that will be associated with his proposed next steps, assuming the Court was minded to make the orders sought pursuant to s 588FF(3)(b) of the Act.
The Liquidator is of the opinion that, based on the records available to him to date, he cannot determine whether there are defences that may be available to the trade creditors. Before commencing proceedings, he wishes to undertake further investigations to better inform himself about such matters. Accordingly, the Liquidator proposes to conduct public examinations under Pt 5.9 of the Act, cause orders for production to be issued for the disclosure of relevant documents, inspect any records produced and obtain advice. Once those steps are complete, the Liquidator wishes to have the opportunity to attempt to resolve any claims he has identified prior to commencing any proceedings. For those reasons, by the plaintiffs’ interlocutory process the Liquidator seeks an extension of 13 months until 31 December 2021.
The proceeding against the Commissioner
On 30 September 2020 SFL and the Liquidator commenced a proceeding against the Commissioner seeking, among other things, an order pursuant to s 588FF(1) of the Act that the Commissioner pay them $877,077.54. It is in that proceeding that this application is made. Since the commencement of the proceeding and based on further records received from the Group Liquidators, the Liquidator and SFL have amended their claim such that they now seek an order pursuant to s 588FF(1) of the Act that the Commissioner pay them the sum of $229,831.74.
LEGAL PRINCIPLES
Section 588FF of the Act relevantly provides:
(1)Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:
(a)an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction;
(b)an order directing a person to transfer to the company property that the company has transferred under the transaction;
(c)an order requiring a person to pay to the company an amount that, in the court’s opinion, fairly represents some or all of the benefits that the person has received because of the transaction;
(d)an order requiring a person to transfer to the company property that, in the court’s opinion, fairly represents the application of either or both of the following:
(i)money that the company has paid under the transaction;
(ii)proceeds of property that the company has transferred under the transaction;
(e)an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction;
(f)if the transaction is an unfair loan and such a debt, security or guarantee has been assigned—an order directing a person to indemnify the company in respect of some or all of its liability to the assignee;
(g)an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company;
(h)an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time;
(i)an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time;
(j)an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable.
…
(3) 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 three year period for commencement of any proceeding pursuant to s 588FF(1) of the Act by the Liquidator expired on 1 December 2020. However, as the plaintiffs filed their application to extend that period on 12 November 2020 prior to the expiration of the three year period, the fact that an order extending the time is made after 1 December 2020 does not affect the validity of that order. An order made after the period of three years has expired is effective for the purposes of s 588FF(3)(b) of the Act provided that the application upon which the order was made was filed within that period: see McGrath v National Indemnity Company [2004] NSWSC 391; (2004) 182 FLR 309 at [18].
In Vaughan v Catanzariti, in the matter of Italian Prestige Jewellery Pty Limited (In Liq) [2018] FCA 1403 (Italian Prestige) at [31]-[32] I set out the principles which guide the exercise of the discretion in s 588FF(3)(b) of the Act as follows:
31Section 588FF(3)(b) of the Act confers a discretion on the Court. In Marsden (liquidator) v CVS Lane PV Pty Limited, in the matter of Pentridge Village Pty Limited (in liq) (receiver and manager appointed) (controller appointed) (2018) 124 ACSR 100; [2018] FCA 102 at [54]-[55] Gleeson J set out the principles which guide the exercise of that discretion:
54The Court is required to consider what is fair and just in all the circumstances: BP Australia Ltd v Brown (2013) 58 NSWLR 322; [2003] NSWCA 216 (BP Australia) at [187]. The applicant for the extension must satisfy the Court that it should be granted: BP Australia at [183].
55The matters that ordinarily inform the exercise of the Court’s discretion are:
(1)the liquidator’s explanation for the delay in taking action within the three year period provided for by the statute;
(2)the merits of the foreshadowed proceeding, assessed by a “preliminary review”; and
(3)any likely prejudice that would be suffered if the extension of time is granted: Parker, Re Worldwide Specialty Property Services Pty Ltd (in liq) v Worldwide Specialty Property Services Pty Ltd (in liq) [2017] FCA 687 at [15]-[16]; Walker and Moloney v CBA Corporate Services (NSW) Pty Ltd [2012] FCA 328 (Walker) at [43].
32In Walker and Moloney v CBA Corporate Services (NSW) Pty Limited (2012) 88 ACSR 153; [2012] FCA 328 at [44] Nicholas J said the following about the issue of the assessment of the merits of a proposed action in circumstances where an extension is sought to permit further investigation:
The preliminary review of the merits of the proposed proceedings is “an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit”: Green v Chiswell Furniture Pty Ltd (in liq) [1999] NSWSC 608 at [15] (Green) per Austin J. However, a review of the merits may be unnecessary if the purpose of the application for an extension of time is to allow the liquidator time in which to properly decide whether or not to bring the proposed proceedings: Green per Austin J at para [15]; see also the summary of the relevant principles of White J in New Cap Reinsurance Corporation Ltd (in liq) v Reaseguros Alianza SA (2004) 186 FLR 175; [2004] NSWSC 787 at [52]-[55].
POSITION OF THE COMMISSIONER
As set out above, the Commissioner was the only party to appear at the hearing of the application. He is party to the proceeding in which this application was made and in which the plaintiffs seek an order pursuant to s 588FF(1) of the Act that the Commissioner pay the sum of $229,831.74.
The Liquidator seeks an order in the form of a “shelf order” enabling proceedings to be brought under s 588FF(1) against any party within the extended period: see Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2015) 254 CLR 489 at [24]. The Commissioner sought to be carved out of any such order if made but otherwise took no position in relation to whether such an order should be made more generally.
The Commissioner submitted that the commencement of the proceeding against him was a compelling reason why the Court should not make an order pursuant to s 588FF(3)(b) of the Act that would apply to him.
The Commissioner raised three principal reasons as to why that was so:
(1)the Liquidator has identified and is already pursuing a proceeding against the Commissioner in respect of claims he may have against him. In that event it follows that it must be inferred that the Liquidator had a proper basis to bring those claims and that he is now or will shortly be ready for them to be determined;
(2)the Court retains a discretion to allow the Liquidator to amend claims made in the existing proceeding against the Commissioner notwithstanding the expiration of the three year limit imposed by s 588FF(3) of the Act. Any new claims which might be advanced by the Liquidator against the Commissioner should be determined by reference to the Court’s power to permit an amendment rather than countenancing the commencement of a fresh proceeding resulting in a multiplicity of proceedings which the Commissioner may then be required to defend; and
(3)to the extent that the Liquidator has elected by an amended statement of claim to limit his claim to certain payments, that is a forensic decision made by the Liquidator in the conduct of the proceeding by which he ought to be bound.
The Commissioner expanded on these reasons both in writing and orally. To the extent necessary, I address those submissions below.
CONSIDERATION
I was satisfied that I should make the order sought by the plaintiffs extending the time to bring an application under s 588FF(1) of the Act for 13 months in relation to any party save for the Commissioner. Having considered the Liquidator’s position vis à vis the Commissioner, I was satisfied that, in relation to him, an order should be made extending the time to bring an application under s 588FF(1) of the Act by a more limited period of seven months. My reasons follow.
Extension of time against any party other than the Commissioner
Explanation for the delay
The Liquidator was appointed almost three years ago. However, since that time his ability to investigate has been hampered by a combination of lack of availability of SFL’s books and records and sufficient funding.
The evidence before me established that the Liquidator had made a concerted effort to obtain the books and records of SFL from the Group Liquidators, a former director of SFL and SFL’s former accountants. Through those efforts, which he has diligently pursued, the Liquidator has been only been partially successful in obtaining material relevant to the investigations he has been undertaking. This is in part because it seems relevant electronic material is not available and in part because of the paucity of records generally. In summary, much of the available material was historical and there was very little material available in relation to payments to creditors.
The evidence before me also established that the Liquidator has had very limited funding. He has had to rely on recovery by SFL from debtors and, as I understand his evidence, it has only been in recent times that he has secured sufficient funds to enable payment of legal costs associated with undertaking the next necessary steps to permit him to carry on his investigations.
The impact of the novel coronavirus (COVID-19) pandemic this year is also a factor which was raised as having affected the speed at which the Liquidator could carry out his investigations.
Having regard to these matters, I was satisfied that the Liquidator had adequately explained why he could not complete his investigations and commence proceedings in the three year period mandated by s 588FF(3)(a) of the Act.
Merits
The Liquidator has formed a view about the solvency of SFL and identified potential parties against whom claims might be made. However, the purpose of the application for an extension of time is to allow the Liquidator time in which to further investigate and, with the benefit of those investigations, decide whether to bring the proposed proceedings. This makes a review of the merits of the potential proceedings unnecessary.
Putting that to one side, I was satisfied based on the evidence before me that there was merit in permitting the Liquidator to proceed with his further investigations in relation to the transactions which he had identified in order to form a view about the payments and related conduct and whether they form the basis for viable claims against any party including those who have been identified to date.
Prejudice
The final matter to consider is that of prejudice. As I have already observed, other than the Commissioner, none of the parties informed of this application, against each of whom the plaintiffs have notified a potential claim, appeared at the hearing. In the material relied on by the Liquidator, no actual prejudice was identified by any of those parties.
There can be presumptive prejudice in cases of lengthy delay: see Italian Prestige at [41]. However, given that none of the parties who were notified of the application came forward and the Liquidator’s undertaking to notify those parties of the orders made and to act diligently in undertaking his further investigations, I was satisfied that, to the extent any prejudice is caused by the extension of time, it is minimal.
Conclusion
Putting aside the position of the Commissioner which I address below, I was thus satisfied that an order pursuant to s 588FF(3)(b) of the Act extending the time in which the Liquidator can make an application under s 588FF(1) in relation to any party other than the Commissioner should be made.
Extension of time against the Commissioner
As set out above, the Commissioner sought to be carved out of any order that was made pursuant to s 588FF(3)(b) of the Act on the basis that a proceeding has already been commenced against him. He says that, in the event that further transactions are identified, they should be the subject of an application to amend the existing pleading rather than a separate proceeding.
The Liquidator has commenced a proceeding against the Commissioner. However, the evidence before me established that he has encountered difficulties in obtaining what he considers to be a complete set of records relating to SFL’s dealings with the ATO. In those circumstances, the Liquidator is concerned that not all transactions that may be the subject of a claim for relief under s 588FF have been identified.
I accepted that, in the event that further transactions are identified, it is appropriate that they be raised by way of amendment to the existing proceeding. However, as became apparent in the course of submissions, the Commissioner was unable to give the Liquidator any comfort that he would not raise as an issue on an application to amend that the claim was brought outside the three year time limit permitted by s 588FF(3)(a) of the Act. At the end of the day, perhaps that is of no consequence: see Sydney Recycling Park Pty Ltd v Cardinal Group Pty Ltd (in liq) [2016] NSWCA 329 at [74]-[75] and [79]-[81]; and Rodgers v Commissioner of Taxation (1998) 88 FCR 61 (Rodgers). That is because additional payments following a pattern of conduct already pleaded, or claims that payments already identified are recoverable by a liquidator, are likely to enliven the Court’s power to allow an amendment even if raised outside the limitation period: see Rodgers at 67-68.
Notwithstanding that and given the Liquidator’s inability to obtain expediently all of the books and records of SFL, I was satisfied, in the particular circumstances that the Liquidator has faced, that the extension of time should extend to the Commissioner. However, given that a proceeding has been commenced and the need for there to be some certainty for the Commissioner about the claim he faces, I was only prepared to grant an extension of a shorter period than 12 months. I was satisfied that I should make an order extending the time under s 588FF(3)(b) of the Act insofar as it concerned the Commissioner by seven months.
CONCLUSION
For those reasons I made the orders that I did on 17 December 2020.
I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Markovic. Associate:
Dated: 22 December 2020
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