Sutherland v Dexion Pty Ltd - [2003] NSWSC 24

No judgment structure available for this case.

Reported Decision:
(2003) 21 ACLC 341

Supreme Court

CITATION: Sutherland v Dexion Pty Limited [2003] NSWSC 24

HEARING DATE(S): 16/12/02

JUDGMENT DATE:
10 February 2003

JURISDICTION:
Equity Division

JUDGMENT OF: Barrett J

DECISION: Order extending time to seek order extending time for liquidator to make applications challenging alleged voidable transactions. Order extending time for liquidator to make such applications.

CATCHWORDS: CORPORATIONS - winding up - voidable transactions - extension of period in which liquidator may seek extended period to challenge such transactions - whether such extension may be made after 3 years from relation-back day - extension of period to challenge voidable transactions - relevant considerations examined - whether money paid under "voidable" transaction recoverable as money had and received

LEGISLATION CITED: Corporations Act 2001 (Cth)

CASES CITED: Re Aura Commercial Interiors Pty Ltd (2002) 20 ACSR 904
Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541
Brown v DML Resources Pty Ltd (No 2) (2001) 39 ACSR 219
Brown v DML Resources Pty Ltd (No 6) (2002) 40 ACSR 669
Brown v DML Resources Pty Ltd (No 7) (2002) 41 ACSR 299
Cowie v State Electricity Commission (Victoria) [1964] VR 788
David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265
Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157
Gibbons v LibertyOne Ltd (2002) 41 ACSR 442
Green v Chiswell Furniture Pty Ltd [1999] NSWSC 608
Re Green (as liquidator of Australian Resources Ltd) (2002) 41 ACSR 69
Greig v Australian Building Industries Pty Ltd [2002] QSC 298
Re Hall [1999] NSWSC 984
Holt v Wynter (2000) 49 NSWLR 129
NSW Sugar Milling Co-operative Ltd v Fowke [2002] NSWCA 229
Re One.Tel Pty Ltd (2002) 43 ACSR 305
Pomeroy v Thwaites Witham Pty Ltd (2001) 79 SASR 498
Re Richard Walter Pty Ltd [1999] NSWSC 1179
Star v National Australia Bank Ltd (1999) 30 ACSR 583
Taylor v Woden Constructions Pty Ltd [1998] FCA 1228
Village Roadshow Broadcasting Pty Ltd v Austereo Ltd (1997) 24 ACSR 185
Re Walker (as liquidator of One.Tel Ltd) [2002] NSWSC 705

PARTIES :
Roderick Mackay Sutherland - Plaintiff
Dexion (Australia) Pty Limited - First Defendant
John Fairfax Publishing Pty Limited - Second Defendant
Francis Daniel Spencer trading as Spencer & Co - Third Defendant
Radio 2UE Sydney Pty Limited - Fourth Defendant
Deputy Commissioner of Taxation - Fifth Defendant

FILE NUMBER(S): SC 5448/02

COUNSEL: Mr F. Gleeson - Plaintiff
Mr C.R.C. Newlinds - First to Fourth Defendants
Mr M.R. Aldridge SC - Fifth Defendant

SOLICITORS: Piper Alderman - Plaintiff
Henry Davis York - First to Fourth Defendants
ATO Legal Practice - Fifth Defendant

- 24 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
CORPORATIONS LIST

BARRETT J

MONDAY, 10 FEBRUARY 2003

5448/02 – SUTHERLAND v DEXION (AUSTRALIA) PTY LIMITED & ORS

JUDGMENT

Introduction

1 The plaintiff is the liquidator of each of Global Self Storage Consolidated Limited and Global Self Storage Pty Limited. He seeks certain relief directed towards possible initiation by him of separate proceedings against each of the present defendants under s.588FF(1) of the Corporations Act 2001 (Cth) in respect of transactions he alleges to be voidable transactions.

2 Each company became subject to Part 5.3A administration on 12 October 1998. The creditors of each company resolved on 9 November 1998 that the company enter into a deed of company arrangement. The deeds were executed on 27 November 1998 and later varied by, among other things, extending their respective expiry dates. The plaintiff was the deed administrator. Each company passed into creditors voluntary winding up on 5 November 2001 pursuant to s.446A in consequence of a resolution of creditors resolving to terminate the relevant deed of company arrangement, to wind up the company and to appoint the plaintiff as liquidator.

3 By operation of ss.513B(b) and 513C(b), the “relation-back day” (as defined by s.9) in relation to each winding up is 12 October 1998, being the day on which the Part 5.3A administration began. It follows that, unless time is somehow extended, the period allowed by s.588FF(3) for the making by the liquidator of applications under s.588FF(1) expired on 12 October 2001 while the administration continued and before the plaintiff acquired the status of liquidator necessary to enable him to seek orders under s.588FF(1).

4 On 8 November 2002 – that is, more than one year after becoming the liquidator of each company and acquiring standing to seek orders under s.588FF(1)) and almost thirteen months after the end of the three year period referred to in s.588FF - the plaintiff filed an originating process claiming two orders:

“1. An order pursuant to section 1322(4)(d) of the Corporations Act 2001 extending, to the date of making this order or such longer period as the Court thinks fit, the period within which an application under section 588FF(3)(b) of the Corporations Act 2001 may be made by the plaintiff for an extension of the period within which the plaintiff may make application under section 588FF(1) of the Corporations Act 2001 against each of the defendants with respect to transactions between each of the defendants and either of Global Self Storage Consolidated Limited or Global Self Storage Pty Limited.

2. Further, an order pursuant to section 588FF(3)(b) of the Corporations Act 2001 extending, to a date six months from the filing of this application or such other period as the Court thinks fit, the period within which the plaintiff may make an application under section 588FF(1) of the Corporations Act 2001 against each of the defendants and either of Global Self Storage Consolidated Limited or Global Self Storage Pty Limited.”

5 Separately and as an alternative (that is, in the event that the extension of time for s.588FF(1) purposes is not achieved by orders 1 and 2 above), the plaintiff seeks a direction as to whether, notwithstanding the expiration of the s.588FF(3) limitation period, the plaintiff would be justified in commencing an action at common law against each defendant seeking to recover moneys the subject of the transactions in respect of which s.588FF(1) proceedings might otherwise have been taken.

6 The plaintiff’s primary claim raises questions as to the meaning and effect of the statutory provisions, apart altogether from the merits of his attempts to pursue the defendants. Those questions concern the availability of s.1322(4)(d) to extend the period of three years referred to in s.588FF(3)(b) and, if s.1322(4)(d) is so available, the considerations that are relevant to, first, extension of that period and, second (and if such an extension is granted), enlargement of the period within which a s.588FF(1) application may be made.

7 I should set out the relevant statutory provisions. Section 588FF(1) begins:

“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:”

Can the period for seeking more time to apply under s.588FF(1) be extended?

8 If the plaintiff is to be able to initiate any application under s.588FF(1), it will be necessary for him to show that s.588FF(3) operates not by reference to the period identified in s.588FF(3)(a), being the period of three years after the relation-back day (that is, the period that ended on 12 October 2001) but, rather, by reference to some substituted longer period that is still current when the application under s.588FF(1) is made. Such a substituted longer period for making a s.588FF(1) application cannot become available to the plaintiff except by an order which, as contemplated by s.588FF(3)(b), fixes some such substituted period. This, as I see it, is probably the force of the words “may only be made” at the start of s.588FF(3) (see David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265), although I note that, in Brown v DML Resources Pty Ltd (No 6) (2002) 40 ACSR 669, Austin J was of the view that “may only be made” is not, in the present context, restricted in the way the High Court there described in relation to another context. Part of the contemplation of s.588FF(3)(b) is that the application for an order for the extension of time within which to seek such a substituted longer period will be made by the liquidator “within those 3 years”, that is, within the three years after the relation back day.

9 In Re Aura Commercial Interiors Pty Ltd (2002) 20 ACLC 904, I held that the general enlarging provision in s.1322(4)(d) was available to allow the making of an order extending the time for the making of an application for an order fixing some substituted longer period as the limitation period imposed by s.588FF(3) in relation to the initiation of an application under s.588FF(1). That conclusion was consistent with the earlier decision of Austin J in Brown v DML Resources Pty Ltd (No 6), although, as I have noted, his Honour appears to contemplate a potential operation of s.1322(4)(d) in the overall s.588FF(3) context more far-reaching than that on which my decision in Aura was based. The view that s.1322(4)(d) is available to ground an order for an extension of the period for making an application under s.588FF(3)(b) is inconsistent with observations of Rolfe J in Star v National Australia Bank Ltd (1999) 30 ACSR 583 and was not accepted by Mullins J in Greig v Australian Building Industries Pty Ltd [2002] QSC 298 (1 October 2002).

10 One feature of the circumstances in both the present case and Aura seems to me to call into question the applicability of the approach that commended itself to Rolfe J in Star v National Australia Bank and to Mullins J in Greig v Australian Building Industries, namely, the fact that the period of three years after the relation-back day expired before there existed anyone competent to make application for either a s.588FF(1) order or an order under s.588FF(3)(b) for the extension of time for making an application for a s.588FF(1) order. In relation to an application for an order of either kind, the only competent applicant is the liquidator of the company concerned. In both this case and Aura, the company spent an unusually long time under a deed of company arrangement. That was the wish of the creditors and the choice was one legitimately open to them. No liquidator capable of making either a substantive s.588FF(1) application or a s.588FF(3)(b) application for the extension of the time for making such a substantive application had assumed office before the three year period expired. If the approach preferred in Star and Greig based upon an immutable period of three years after the relation-back day is accepted, it must follow that creditors who, for good and proper reasons, accept a prolonged period of Part 5.3A administration and then see the company pass into the form of voluntary winding up produced by s.446A are denied all chance of the benefits that may come from recoveries through s.588FF(1). It is difficult to conceive of any reason of legislative policy why such a disadvantage should be visited upon such creditors in an apparently arbitrary way.

11 Under the approach in Star and Greig, the Corporations Act itself is seen to countenance and to allow to be created a situation where one species of liquidator (that is, a liquidator taking office pursuant to s.446A after the period of three years after the relation-back day has already ended) never has even the opportunity to seek permission to take the distinct and separate step of making a case for the grant of additional time to challenge transactions he or she considers to be voidable transactions. Such a drastic consequence is of itself some indication of a legislative intention that s.1322(4)(d) should be available to allow that purely threshold issue to come before the court in such a case. In saying this, I do not lose sight of the interests of any parties who may be the intended defendants in any s.588FF(1) proceedings that may eventually be instituted. Their interests will obviously be relevant to the exercise of, in the first instance, the s.1322(4)(d) jurisdiction and, if the application under that section is successful, the subsequent application under s.588FF(3)(b) for an enlarged period within which to make s.588FF(1) applications.

12 While appreciating the force of what was said by Rolfe J in Star and by Mullins J in Greig, I continue, with respect, to be of the opinion that s.1322(4)(b) is a source of jurisdiction for the court to make an order extending the period within which a liquidator may make an application for an enlarged period within which to make a s.588FF(1) application. I adhere to the construction of s.588FF that I adopted in Aura. Although Mullins J regarded that construction as “unnatural”, it is, to my mind, not only clearly open (as is shown also by the discussion in Brown v DML (No. 6)) but, as I shall explain in a moment, dictated by the words themselves; and I note that her Honour had no occasion or need to consider the significance of the particular factual circumstance to which I have referred. It is also relevant to record that the observations of Rolfe J in Star and Mullins J in Greig as to the unavailability of s.1322(4)(d) were, strictly speaking, obiter since other provisions were relied upon to allow, after the expiry of the three year period, amendment of a pleading in one case and joinder of a defendant in the other.

13 I should explain in some greater detail why, as a matter of construction, I adhere to the approach adopted in Aura. In what might be termed its ”long form”, s.588FF(3) reads as follows:

14 The special considerations arising from the factual circumstance to which I have referred are, it seems to me, a product of the operation of Part 5.3A. Those considerations only emerge in a case of prolonged Part 5.3A administration followed by transition to voluntary winding up by operation of s.446A. That being so, it seems to me that s.447A would be available to do the work the plaintiff now seeks to have done by s.1322(4)(b). The possibility of resort to s.447A was referred to briefly in Aura (at para [4]) but not pursued. More comprehensive discussion of the scope of s.447A in Gibbons v LibertyOne Ltd (2002) 41 ACSR 442 (decided a few days before Aura) and afterwards in Re Walker (as liquidator of One.Tel Ltd) [2002] NSWSC 705 and Re One.Tel Ltd (2002) 43 ACSR 305 indicates that the section may be invoked in such a way as to vary the incidents of the form of winding up produced by s.446A by attributing a suitably modified operation to s.446A itself.

15 The plaintiff has not sought relief under s.447A and I therefore say no more about it. It is sufficient to record the conclusion that, for the reasons stated, I am satisfied that s.1322(4)(d) is available as the basis for the first order the plaintiff seeks. The fact that the period of three years within which an application for further time to apply under s.588FF(1) should normally be made has already expired is no barrier to the making of an order under s.1322(4)(d). This is made clear by the words in brackets in s.1322(4)(d) itself.

Should the period for seeking more time to apply under s.588FF(1) be extended?

16 This question involves considerations quite separate from those relevant to the question whether the period within which a s.588FF(1) application may be made should be extended. The sole issue is whether the liquidator, having attained that status more than three years after the relation-back day, should be permitted to pursue a claim for the enlargement of the time within which he may challenge, via s.588FF(1), transactions he considers to be voidable transactions.

17 The only specific restraint upon the making of an appropriate order under s.1322(4)(d) is that created by s.1322(6)(c), namely, that the court is not to make the order unless it is satisfied that “no substantial injustice has been or is likely to be caused to any person”. There is, however, an implied limitation as well. I refer, in this connection to the following passage in the judgment of Goldberg J in Village Roadshow Broadcasting Pty Ltd v Austereo Ltd (1997) 24 ACSR 185:

“The power of the court under s 1322(4)(d) is expressed in extremely broad terms and is only circumscribed by the requirement in s 1322(6)(c) that the court is not to make an order under s 1322(4) unless it is satisfied that ‘no substantial injustice has been or is likely to be caused to any person’. I would also imply a limitation on subpara (4)(d) that any order made under that subsection must be consistent with the policy of the Corporations Law in relation to the subject-matter of any particular abridgment sought. As was pointed out by Owen J in Elderslie Finance Corp Ltd v ASC (1993) 11 ACSR 157, 160, s 1322 (4) is a remedial section but in my opinion subpara (d), in particular, not only enables the court to extend the period for doing any act, it also allows the court to accelerate the time by which an act must be done or a proceeding instituted by abridging the period for doing such act or instituting such proceeding. However it incumbent upon any applicant affirmatively to satisfy the court that no substantial injustice will be occasioned by such an order and as Owen J said in Elderslie Finance Corp Ltd v ASC this requires the court to consider ‘real, and not merely insubstantial or theoretical prejudice’. The subsection was touched on by the High Court in David Grant & Co Pty Ltd v Westpac Banking Corp (rec apptd) (1995) 184 CLR 265, 274-6, 278 131 ALR 353; 18 ACSR 225 but not in any context relevant to the issues now before this court.”

18 The onus of showing that no injustice has been or is likely to be caused to any person rests with the plaintiff as the party seeking s.1322(4) relief: Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157.

19 In the present case, the persons who may be prejudiced by the making of the order claimed under s.1322(4)(d) are the defendants whose transactions with the companies in liquidation may become subject to scrutiny under s.588FF(1) if both the s.1322(4)(d) order and an order extending time for the making of the s.588FF(1) applications are made. But the defendants have appeared and have been heard. The real and immediate cause of any substantive exposure they come to suffer will be the second of the two orders to which I have referred, assuming it is made. I accept that the making of the s.1322(4)(d) order may entail prejudice to them in the sense that the strength and cogency of their resistance to the application for the second order then becomes the sole factor upon which their continued immunity from s.588FF(1) proceedings turns. But in circumstances where, as I have said, each has appeared and been heard, any such prejudice cannot be regarded as itself entailing “substantial injustice”.

20 This, coupled with the fact that there was no competent applicant for any extension of time before the end of the three year period and that refusal of the s.1322(4)(d) order would mean that even the theoretical possibility of resort to s.588FF(1) in the interests of creditors would be permanently precluded, persuades me that it is appropriate to make the s.1322(4)(d) order. Such an order would, in my view, be consistent with the policy of the Corporations Act in relation to the relevant subject matter.

Should more time to apply under s.588FF(1) be granted?

21 I proceed now to consider the question whether the court should make an order, pursuant to s.588FF(3)(b), extending the period within which the plaintiff, as liquidator, may make an application under s.588FF(1) in respect of the transactions involving the several defendants. That question arises for consideration in circumstances to which I have already referred, namely, that the plaintiff did not have standing to proceed under s.588FF(1) until after the normal limitation period of three years had expired and, having acquired standing on 5 November 2001 after a period of some three years and one month as administrator under the voluntary administration and deed of company arrangement, did not for a further year move, by the filing of the originating process on 8 November 2002, to clear the way to initiate s.588FF(1) proceedings.

22 The approach the court should take to such an extension application has been referred to in a number of cases. The following formulation by Austin J in Green v Chiswell Furniture Pty Ltd [1999] NSWSC 608 (applied by Hamilton J in Re Hall [1999] NSWSC 984, by Santow J in Re Richard Walter Pty Ltd [1999] NSWSC 1179 and by me in Re Green (as liquidator of Australian Resources Ltd) (2002) 41 ACSR 69) draws heavily on the decision of Finn J in Taylor v Woden Constructions Pty Ltd [1998] FCA 1228:

23 In this instance, para (b) may be disregarded. This is a case in which the liquidator’s proposed resort to s.588FF(1) relates to specific transactions to which the present defendants were parties. It is therefore appropriate to consider the three matters emerging from Austin J’s para (a).

24 In approaching those matters, I proceed on the footing that s.588FF(3) is concerned only to mark a point beyond which proceedings cannot be commenced and does not operate to extinguish the basis for the proceedings. It is therefore, in general terms, to be approached in the same way as any other limitation provision capable of being extended by order of the court. The policy upon which such provisions are based is to require persons with good causes of action to pursue them with reasonable diligence. All other things being equal, it is expected that proceedings will be instituted within the stated limitation period. Provisions for the extension of limitation periods exist to redress injustice that may be occasioned by their rigid application. The reasons for the enactment of s.588FF(3) have been referred to by Austin J on several occasions. It is sufficient to quote from his Honour’s judgment in Brown v DML Resources Pty Ltd (No. 7) (2002) 41 ACSR 299:

‘The three year limitation period (with the proviso for an extension of time) was first introduced by the Corporate Law Reform Act 1992, effective 23 June 1993, following the recommendation of the Harmer Report (see Australian Law Reform Commission, Report of the General Solvency Inquiry (Report No 45), para 688). It is apparent from the Harmer Report that the purpose of shortening the limitation period (which previously was six years) was to place liquidators under more rigorous time limitations for taking action to recover in respect of voidable transactions. The justification for the amendment appears to have been complaints concerning inordinate delays in commencing proceedings in respect of voidable transactions, and judicial observations critical of general delays associated with winding up of insolvent companies (see A R Keay, Avoidance Provisions in Insolvency Law (1997), at p 286, and the authorities referred to in note 127).’

‘The legislative policy is to discourage liquidators from delaying or deferring action with respect to voidable transactions until their other tasks have been carried out. It is not a policy of setting up an inescapable time limit regardless of individual circumstances. It is not incompatible with the policy to allow the Court to extend the time for the liquidator to make an application to challenge a voidable transaction.’”

25 The point to be stressed here is that the three year limitation period is intended to ensure that liquidators act promptly. The principal concern is by no means to create any form of safe haven for parties to transactions, although, as Austin J acknowledged in Brown v DML Resources Pty Ltd (No 2) (2001) 39 ACSR 219, that may be accepted as being part of the legislative intent subject always to the possibility of extension in a case seen by the court to warrant further time being given to the liquidator. The emphasis is upon engendering reasonable and responsible conduct in liquidators, not upon affording or ensuring protection to potential defendants. The provision allowing the court to extend the period recognises that there may be occasions on which it is consistent with reasonable and responsible conduct on the liquidator’s part for a defendant to be subjected to relevant proceedings even though the generally applicable deadline has passed.

26 Because the policy underlying s.588FF(3) thus coincides generally with that upon which limitation provisions generally are based, it is necessary, upon an extension application such as this, to have regard to principles emerging from the judgments of members of the High Court in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541. As Gray J pointed out in Pomeroy v Thwaites Witham Pty Ltd (2001) 79 SASR 489, three different approaches are evident in those judgments. In this State, it is appropriate for first instance judges to proceed on the basis stated in the judgment of Sheller JA (with whom Meagher JA, Handley JA and Brownie A-JA agreed) in Holt v Wynter (2000) 49 NSWLR 129:

“In my opinion, the effect of the decision of the High Court in Brisbane South Regional Health Authority is that an application for an extension of time under limitation legislation should be refused if the effect of granting the extension would result in significant prejudice to the potential defendant.

Accordingly, in my opinion, if Judge Cantrill correctly concluded that the respondent in this case would have suffered significant prejudice as a result of the extension applied for, the application was rightly refused. However, for the reasons Priestley JA has given, I am of the opinion that there was no sufficient basis for that conclusion.”

27 As I read the judgment of Sheller JA, his Honour and the three judges who concurred with him also endorsed the approval given by Toohey and Gummow JJ to a statement of Gowans J in Cowie v State Electricity Commission (Victoria) [1964] VR 788:

“It is for the respondent to place in evidence sufficient facts to lead the Court to the view that prejudice would be occasioned and it is then for the applicant to show that these facts do not amount to material prejudice.”

28 The third of the matters referred to in para (a) of the Green v Chiswell Furniture formulation should, in my opinion, be approached against the background of these more general principles.

The explanation for delay

29 I turn now to the first consideration referred to in Green v Chiswell Furniture, that is, the reason why it took the plaintiff a year after acquiring the status of liquidator to initiate the present proceedings directed towards resort to s.588FF(1). In doing so, I bear in mind the following passage in the judgment of Austin J in Brown v DML (No. 7):

“It is not necessary, for the purpose of persuading the court to exercise its discretion to grant an extension of time, to show that the particular administration in question has been given absolute priority over every other administration in the hands of the insolvency practitioners in question; nor that the pursuit of unfair preferences was given absolute or very high priority over other tasks in the administration. The court must be careful not to replace the liquidator’s judgment on the commercial management of the administration with its own opinion. To the extent, therefore, that delay was explained by reference to the plaintiffs’ judgment that it was in the interests of all creditors that attention be paid to the secured creditor, and that there were good commercial reasons for approaching one litigation financier at a time rather than playing them off against one another, and in the absence of anything to show that such judgments were unreasonable, the court should accept the explanation. It may be, as Mr Cuming conceded, that the insolvent administration of these companies could have been completed within 12 months if there were adequate funding and therefore sufficient personnel and resources, but the court should not require that the administration be completed within the quickest possible time, provided that the liquidator’s allocation of resources to the administration has been reasonable in all the circumstances.”

30 The real issue is thus whether the conduct of the liquidator, as to matters of timing, reflects sound judgment.

31 The plaintiff deposes in his affidavit of 8 November 2002 that, after becoming liquidator in November 2001, he had difficulty in obtaining possession of the books and records of the companies which were “at various locations throughout Sydney”. It is not clear to me how the books and records had been scattered in that way, given the clear expectation in ss.438B(1) and 438C that an administrator should have company books and records in his possession. I can only infer that, while the deeds of company arrangement were in force, the predominant expectation was that the deeds would come to a successful conclusion, that creditors’ claims would all be resolved according to the terms of the deeds and that the companies would revert to the control of their directors. At all events, the plaintiff has deposed to difficulty in obtaining the books after he became liquidator and says that he did not have them until mid-December 2001. His evidence continues:

“I thereafter had to complete investigations on those books and records. That did not conclude until late April/early May 2002. Those investigations included drafting a section 533 report to the ASIC and reviewing again the voidable transactions. The senior accountant in my office dealing with these liquidations believed, because the time-period under the Corporations Act for the pursuit of unfair preferences (being 3 years from the relation-back date) had expired before my appointment as liquidator, that there was no ability to pursue thereafter unfair preferences.

In July 2002, the manager reviewing the files in preparation for finalisation, queried whether, an extension order could be procured to pursue unfair preferences. Upon concluding on reviewing recent case law that it may be possible for me to pursue potential unfair preferences, I forwarded letters of demand of 20 August 2002 to the defendants, which are exhibited hereto as set out below and awaited responses before determining to bring this application.”

32 The plaintiff, when administrator, mentioned the possibility of voidable transactions in his report to creditors dated 30 October 1998. Under the heading “Preferences” in that report, the plaintiff said that he had identified “at least $455,035 of transactions which have the characteristics indicative of unfair preference payment”. The transactions in question were then briefly described. Those involving the present defendants were among the transactions referred to in the report. The general issue of voidable transactions was also mentioned in the part of the report dealing with considerations relevant to the decision to approve the proposed deed of company arrangement, rather than having the companies pass immediately into winding up. The report said:

“If the Deed is entered into insolvent trading offences and voidable preferences and uncommercial transactions could not be pursued. I provide herewith estimates of each possible scenario.”

33 This statement seems to me to reflect an assumption that, if a deed of company arrangement was entered into, the deed would be implemented according to its terms and the relevant company would, in due course, be returned to the control of its directors freed from creditors’ claims. The statement that voidable transactions could not be pursued must be understood in the light of that expected outcome which, while it came to pass in relation to all other companies in the relevant group, did not eventuate in relation to the two with which this application is concerned.

34 The position in this case, as I see it, is that the plaintiff could not, for obvious reasons, have commenced s.588FF(1) proceedings within the period of three years to which s.588FF(3) refers and, upon becoming liquidator, was initially of the genuine belief that the law would not allow the grant of any extension of time to enable him to do so. It was only on reviewing “recent case law” in July 2002 (presumably Brown v DML (No. 6) decided in January 2002 and Aura decided in April 2002) that he saw any point in attempting to pursue the matter. He thereupon acted with reasonable dispatch to make demands upon the several defendants referring to the possibility of an application under s.1322(4)(d) for an order extending time. When those demands were not met, he moved reasonably promptly to file his originating process.

35 In these circumstances, I do not consider that timing factors operate adversely to the plaintiff’s s.588FF(3) application. As I observed in Re Green (as liquidator of Australian Resources Ltd), s.588FF is based on an expectation that a liquidator will have a period of three years in which to decide whether to resort to s.588FF(1) proceedings and that the whole of that period will be available to the liquidator in a meaningful way. In Brown v DML (No. 7) at [15] to [17], Austin J considered the circumstances of the several decided cases from which it was clear that in none of them had the full period in fact been available in a meaningful way. That was a factor in the decisions to grant an extension of time. The same factor operates here in favour of extension. While the deeds of company arrangement were in place and expected to resolve creditors’ claims, there was no occasion for the liquidator to pay any attention to the possibility of challenging voidable transactions.

Merits of the foreshadowed proceedings

36 I proceed now to the second matter in para (a) of the formulation in Green v Chiswell Furniture, namely, a preliminary review of the merits of the foreshadowed s.588FF(1) proceedings and the question whether they are so devoid of merit that it would be unfair to expose the relevant defendant to the continuing prospect of suit. This inquiry must, of course, be undertaken separately in the light of the circumstances of each case.

37 In relation to the first defendant, Dexion (Australia) Pty Ltd (“Dexion”), the evidence shows that, on or about 23 March 1998, Dexion served a statutory demand on K & T Metal Fabrications Pty Ltd in respect of a debt of some $31,000. By letter to Dexion’s solicitors dated 8 May 1998, Global Self Storage Ltd stated that it, not K & T, was liable for that debt and that it expected to be able to “extinguish” it “in the near future” and “trust that your client will bear with us for a shortwhile [sic]”. Some two months later, Global Self Storage Ltd made a payment of $88,467.59 to Dexion purportedly to settle all amounts due by “Global Self Storage and associated companies to include K & T Metal Fabrications Pty Ltd”. The letter enclosing the payment referred to the difficulty there had been in making it.

38 The plaintiff wrote to Dexion in August 2002 demanding payment of the sum of $88,467.59 and referring to ss.588FA and588FG of the Act. Factors identified as indicative of insolvency were summarised as follows:

“(a) On or about December 1997, a proposed public float of GSS was a failure as the minimum subscription was not achieved and the prospectus was withdrawn. This resulted in all application monies being returned to investors.

(b) A schedule of occupancy rates of facilities as detailed in the prospectus as at 17 September 1997 showed that current occupation of eventual capacity of the group was 36%. GSS’ prospectus indicated that 50% of the capacity was required to be developed in order for each facility to become cash flow positive.

(c) As at 31 December 1997, the group had a net asset deficiency of $2,235,176.

(d) As at 31 December 1997, trade creditors were $2,033,750 whilst cash at bank balance was $68,113.

(e) There are debts to the Australian Taxation Office and Office of State Revenue for taxation liabilities in the amounts of $103,230.59 and $121,793.57 respectively.

(f) There is a deficiency to unsecured creditors in the Report As To Affairs (‘RATA’) in the sum of $5,087,815.

(g) A number of statement of liquidated claims and statutory demands were served on GSS within the six months period prior to my appointment as Administrator. GSS also entered into an instalment agreement to pay a creditor back during this time.”

39 The evidence shows some uncertainty or doubt as to the identity of the debtor company. Not only is there the express references to K & T, there is also the fact that the letters are from “Global Self Storage Limited ACN 073 818 998” whereas the company having that ACN involved in these proceedings is described as “Global Self Storage Pty Limited” and the plaintiff’s demand for payment of $88,476.59 appears to have been made by him as liquidator of Global Self Storage Consolidated Limited ACN 074 264 949.

40 The second defendant, John Fairfax Publishing Pty Limited (“Fairfax”), carried paid advertising in its publications, apparently for “Global Self Storage Pty Limited ACN 073 818 998”. By letter dated 19 February 1998, Fairfax accepted a proposal for payment of $42,963.94 by instalments. In the letter proposing payment by instalments, the chief executive of Global Self Storage Limited referred to a failed attempt to raise equity which left the company “in a parlous financial position”, dependent upon shareholders’ support “to survive”. On 20 July 1998, Fairfax commenced proceedings in the Local Court at Bankstown claiming a debt of $32,168.26 plus interest and costs, making a total of $34,646.75. The plaintiff says that, according to the books, that amount was paid on 12 October 1998. The plaintiff’s demand upon Fairfax recited the indicators of insolvency that were mentioned in the letter to Dexion.

41 The third defendant, Mr Spencer, was, at the relevant time, an accountant in sole practice under the name “Spencer & Co” who provided professional services to members of the Global Self Storage group. Indeed, he appears to have been their auditor. By letter dated 20 March 1998 to the chief executive of Global Self Storage Consolidated Limited, Mr Spencer referred to a previously agreed timetable for the payment of $106,000 in fees outstanding and sought to impose firm time requirements on an arrangement for payment by instalments. The chief executive replied on 25 March saying that “the financial position at Global, whilst improving is not 100% where I would like it to be, and will certainly not be there prior to the end of March”. He agreed to certain elements of the timetable and said that he would try to meet others “if cash flow allows”.

42 There is subsequent correspondence (June 1998) from which it appears that Mr Spencer agreed to accept $52,000 in full settlement of fees and that this sum was paid on that basis with a covering letter which said:

“We do unfortunately live in difficult times and this sort of necessary pruning allows us elbow room to breathe.”

43 The plaintiff’s letter of demand to Mr Spencer referred to the same indicators of insolvency as were stated in the letter to other defendants.

44 The fourth defendant, Radio 2UE Sydney Pty Limited (“2UE”), wrote to “Global Self Storage” on 20 March 1998 demanding payment of $58,125.00 by 31 March 1998 and stating that, in default, legal action would be taken. A debt collection agency made like demand on 6 April 1998. Proceedings for recovery of that debt plus costs were commenced in the District Court on 17 April 1998. Letters from solicitors for Global Self Storage Pty Limited denied liability but the debt was eventually paid on 17 July 1998. In this case, there is no evidence of letters to 2UE referring to the Global group’s financial difficulties. The plaintiff’s demand upon 2UE refers to the same indicators of insolvency.

45 In the case of the fifth defendant, Deputy Commissioner of Taxation (“ATO”), there is in evidence a statutory demand served on “Global Self Storage Limited” on or about 7 March 1998 in respect of a debt of $30,020.62. On 13 August 1998, the accountant of Global Self Storage Consolidated Limited wrote to ATO referring to discussions and saying:

“At this time we are unable to pay the total of our indebtedness for group tax deductions which, according to your statement yesterday and including penalties to date, amounts to $149,559.82.”

46 There followed a proposed schedule of instalments to clear the balance over six months. This was agreed to by ATO’s letter of 14 August 1998. Payments totalling $163,650.46 appear to have been made and it is by reference to these that the plaintiff may proceed under s.588FF(1). The plaintiff’s demand upon ATO referred to the indicators of insolvency already noted.

47 Proceedings under s.588FF(1) involve the question whether the transaction in question is of such a nature as to be caught by s.588FE. In each of the cases under consideration, the relevant aspect of s.588FE is that emerging from s.588FE(2) which poses the central question whether the transaction under attack is “an insolvent transaction of the company” and that, in these particular cases, focuses attention on whether the company was insolvent at the time of the transaction. If that question is answered in the affirmative, it becomes necessary to consider the matters in s.588FG – generally, whether the defendant, in becoming party to the challenged transaction, acted in good faith and without reasonable grounds for suspecting the company’s insolvency and whether a reasonable person in the defendant’s circumstances would have had no such grounds for so suspecting. This, I hasten to say, is intended merely as a general description of the relevant issues sufficient to elaborate the background against which the court must consider the question whether, in a particular case, the liquidator’s foreshadowed claim is so devoid of merit that it would be unfair to expose the relevant defendant to the continuing prospect of suit.

48 My assessment is that that question must, in each of the five present cases, be answered favourably to the liquidator. The assertion that each relevant company was insolvent at each relevant time is sufficiently cogent to be responsibly advanced. The circumstances in which each payment was received are such as at least to call into question the ability of the particular creditor to prove the matters contemplated by s.588FG. The plaintiff may have to overcome some obstacles in pursuing his claims. But those claims are not fanciful, ill-conceived or devoid of merit in such a way that the plaintiff should be denied the opportunity to advance them because to do so would entail unfairness to the defendants.

Prejudice to the defendants

49 The final matter to be considered is the general issue of prejudice to each of the several defendants if the period for initiating s.588FF(1) proceedings is extended – or, as it was put in para (a) of the Green v Chiswell Furniture formulation:

“whether the likely actual prejudice resulting from the grant of an extension is sufficiently substantial to outweigh the case for granting an extension.”

50 Again, the positions of the respective defendants must be separately examined.

51 Dexion relies upon an affidavit of one of its directors, Mr Clayton, who deposes to two relevant matters: first, the uncertainty or confusion that seems to exist as to which companies in the Global group were debtors; and, second, a likely need to seek information from Mr Dewberry who was Dexion’s credit manager at the relevant time but left its employ in October 1998. It is said that his departure makes it difficult to obtain further information required from Mr Dewberry, but it is not said that he is either unavailable or unwilling to assist. There is also the point that any difficulty occasioned by Mr Dewberry’s employment having ended existed for most of the period of three years after the relation-back day in which s.588FF(1) proceedings could have been commenced against Dexion without any prior order of the court.

52 Mr Spencer deposes that, because it was expected that the deeds of company arrangement would bring about resolution of all matters concerning the Global group, certain records which might otherwise have been kept were disposed of when his practice changed premises in October 1998 and December 2000 and when renovations were carried out in June 2002. Because the deeds were not entered into until 27 November 1998, this statement can be disregarded in so far as it relates to the move in October 1998. Mr Spencer also deposes to changes in the practice composition and the fact that persons who are now his partners have not been made aware of a potential unfair preference claim or a contingent liability. The relevance of this is, however, far from clear since the foreshadowed s.588FF(1) action is against Mr Spencer alone and involves payments received by him as a sole practitioner.

53 In the case of 2UE, there is an affidavit of Ms Garrido, its financial director. She says that 2UE has had difficulty in obtaining information to reconstruct the relevant events. She refers to various changes of personnel. However, only one of the several persons mentioned is said to have left 2UE’s service. This is Tracy Downing who was financial controller at the relevant time and, it appears, left in June 2001, that is, before the end of the period of three years after the relation-back day. She and Karen Laus dealt with the Global account. Karen Laus is still employed by 2UE. The deponent says that it would be possible to locate Tracy Downing but “it is quite possible that she would be unwilling to assist”. Ms Garrido also refers to the accounting department having moved some time before November 2001, at which time “much of the paperwork was moved or destroyed and has not been able to be located”. It is not said in any explicit way that records relating to this particular matter have been destroyed or lost. The timing of the move also appears to be such that any consequent difficulty resulted from actions taken by 2UE while the period of three years after the relation-back day was current.

54 ATO relies on an affidavit of Ms Brennan, one of its officers based at Parramatta. Ms Brennan deposes that ATO maintains both a paper file and computer records in relation to each taxpayer entity. The computer record contains certain file notes. It is likely that a paper file contains correspondence not included in the computer record. Ms Brennan has inspected the computer record relevant to the present matter and has ascertained the name of the ATO officer involved at relevant times. That officer is still with ATO, although now located in Brisbane. Enquiries pursued by Ms Brennan through the officer concerned have failed to find any relevant paper file. It is not suggested, however, that any policy exists which would have caused the file to be destroyed. It is simply missing at this stage.

55 No evidence has been led on behalf of Fairfax in relation to matters of the general kind covered in the four affidavits to which I have just referred.

56 Against this background, I return to the question whether grant of an extension will produce a likelihood of actual prejudice sufficiently substantial to outweigh the case for granting an extension. Fairfax has not shown any likelihood of actual prejudice. In each of the other four cases, the defendant will be beset by difficulties that would not have confronted it if s.588FF(1) proceedings had been commenced in late 1998 when files were intact, staff members were in place and recollections were fresh. Each now has (indeed, also had in October 2001 when the three year period was about to expire) fewer resources, in terms of paper records and human recollection, than it had at the start of 1999. But, having regard to the fairly confined nature of the matters a liquidator must prove (and a defendant may therefore seek to contradict) under s.588FE and of the defences a defendant may pursue under s.588FG, I am not satisfied that any of Dexion, Mr Spencer, 2UE and ATO is faced with a likelihood of substantial prejudice sufficient to justify permanent immunity from the possibility of s.588FF(1) proceedings.

57 The availability of contemporary documents was a factor relevant to the assessment of prejudice undertaken in Holt v Wynter. In relation to the relevance of that issue to the question of “substantial prejudice”, Sheller JA and the three concurring judges agreed with the fifth member of the court, Priestley JA. The touchstone adopted by Priestley JA (at [94]) was one of “reasonable practicality” in the preparation of the defendant’s case. In each of the present instances, I see nothing in the evidence upon which any of the present defendants relies that makes me conclude that such “reasonable practicality” will be denied that defendant because the foreshadowed proceedings are commenced some fifteen or eighteen months later than the latest day on which the liquidator could have commenced them without the need for any prior order of the court.

Other matters

58 It was submitted on behalf of the defendants that certain other considerations should cause the court to exercise its discretion adversely to the plaintiff’s present claims.

59 First, the defendants point to the parts of the plaintiff’s report to creditors dated 30 October 1998 already mentioned where it was said that insolvent trading and voidable preference claims could not be pursued if a deed of company arrangement was entered into. Creditors voted to follow the deed of company arrangement course with the result, it is said, that they should not now be allowed to have the benefit of provisions that they in effect elected to abandon. I do not accept this submission. In the absence of some statutory indication to the contrary, votes of creditors which, as a matter of process or procedure, result in certain courses of action being adopted in an insolvent administration cannot be regarded as raising some form of estoppel barring access by an administrator or liquidator to statutory remedies designed to enhance funds available for application in the administration. There is no such statutory indication here.

60 It was next submitted on behalf of the defendants that, since a deed of company arrangement had been in force in relation to each company and creditors had received distributions under the deed, complexities and uncertainties would arise as to the correct method of applying any further funds that might come into the liquidator’s hands as a result of s.588FF(1) proceedings. This may be so; but even if it is, it does not represent any good or valid reason why the prospects of further recoveries should be denied. Any complexities and uncertainties of the kind suggested will be capable of resolution and will no doubt be resolved as and when occasion requires.

61 The defendants also submitted that the sums involved in the potential recoveries are relatively small, so that creditors will benefit to only a modest extent in the event of success under s.588FF(1) – assuming that the whole of any recoveries is not absorbed by legal fees and liquidator’s remuneration. An equivalent submission was made but rejected in proceedings under s.588FF(1) itself in Pegulan Floor Coverings Pty Ltd v Carter (1997) 25 ACSR 651. As Doyle CJ there made clear, the purpose of the provisions in question is to avoid the conferring of preferential benefits, so that the extent to which returns to creditors will thereby be enhanced is largely beside the point. Nor is it in any way objectionable for a liquidator to pursue avenues of recovery just because proceeds are likely to benefit claimants ranking in priority to ordinary unsecured creditors. The considerations of legislative policy referred to by Doyle CJ mean that the submission rejected upon a s.588FF(1) application in Pegulan should not be accepted in the present s.588FF(3)(b) context either.

Decision on whether more time to apply under s.588FF(1) should be granted

62 On the basis of the foregoing assessment of the matters made relevant by Green v Chiswell Furniture and Holt v Wynter and of the additional matters advanced on behalf of the defendants, I am satisfied that it should be ordered that each of the foreshadowed applications by the plaintiff under s.588FF(1) may be made within the period that will end six months from the filing of the originating process in these proceedings.

The direction

63 In view of this outcome, I am not required to deal with the plaintiff’s application for a direction as to whether he would be justified in proceeding at law against each defendant by way of an action for money had and received. I simply observe that, had it been necessary for me to address the matter, my inclination would have been to regard “voidable” in s.588FE as no more than a statutory label applied to transactions of specified kinds for the purpose of bringing them within reach of the remedial orders that s.588FF(1) empowers the court to make. Viewed in that way, the word “voidable” says nothing about the intrinsic nature of the transaction or its status from the viewpoint of the law of contract or the law of restitution.

Orders

64 The plaintiff is entitled to orders 1 and 2 in the originating process filed on 8 November 2002, but with “or such longer period as the Court thinks fit” omitted from the former and “or such other period as the Court thinks fit” omitted from the latter. The plaintiff is also entitled to an order that his costs of these proceedings be paid by the defendants.

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Last Modified: 02/10/2003

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Citations

Sutherland v Dexion Pty Ltd [2003] NSWSC 24

Most Recent Citation

Horne v Deputy Commissioner of Taxation [2005] VSC 409

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JPMorgan Chase Bank, National Association v Fletcher; Grant Samuel Corporate Finance Pty Limited v Fletcher [2014] NSWCA 31

BP Australia Ltd v Brown [2003] NSWCA 216

Greig v Stramit Corporation Pty Ltd [2003] QCA 298

Cases Cited

22

Statutory Material Cited

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David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43

Brown v DML Resources Pty Ltd [2001] NSWSC 590

David Grant & Co Pty Ltd v Westpac Banking Corporation [1995] HCA 43

CITATION:	Sutherland v Dexion Pty Limited [2003] NSWSC 24
HEARING DATE(S):	16/12/02
JUDGMENT DATE:	10 February 2003
JURISDICTION:	Equity Division
JUDGMENT OF:	Barrett J
DECISION:	Order extending time to seek order extending time for liquidator to make applications challenging alleged voidable transactions. Order extending time for liquidator to make such applications.
CATCHWORDS:	CORPORATIONS - winding up - voidable transactions - extension of period in which liquidator may seek extended period to challenge such transactions - whether such extension may be made after 3 years from relation-back day - extension of period to challenge voidable transactions - relevant considerations examined - whether money paid under "voidable" transaction recoverable as money had and received
LEGISLATION CITED:	Corporations Act 2001 (Cth)
CASES CITED:	Re Aura Commercial Interiors Pty Ltd (2002) 20 ACSR 904 Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 Brown v DML Resources Pty Ltd (No 2) (2001) 39 ACSR 219 Brown v DML Resources Pty Ltd (No 6) (2002) 40 ACSR 669 Brown v DML Resources Pty Ltd (No 7) (2002) 41 ACSR 299 Cowie v State Electricity Commission (Victoria) [1964] VR 788 David Grant & Co Pty Ltd v Westpac Banking Corporation (1995) 184 CLR 265 Elderslie Finance Corporation Ltd v Australian Securities Commission (1993) 11 ACSR 157 Gibbons v LibertyOne Ltd (2002) 41 ACSR 442 Green v Chiswell Furniture Pty Ltd [1999] NSWSC 608 Re Green (as liquidator of Australian Resources Ltd) (2002) 41 ACSR 69 Greig v Australian Building Industries Pty Ltd [2002] QSC 298 Re Hall [1999] NSWSC 984 Holt v Wynter (2000) 49 NSWLR 129 NSW Sugar Milling Co-operative Ltd v Fowke [2002] NSWCA 229 Re One.Tel Pty Ltd (2002) 43 ACSR 305 Pomeroy v Thwaites Witham Pty Ltd (2001) 79 SASR 498 Re Richard Walter Pty Ltd [1999] NSWSC 1179 Star v National Australia Bank Ltd (1999) 30 ACSR 583 Taylor v Woden Constructions Pty Ltd [1998] FCA 1228 Village Roadshow Broadcasting Pty Ltd v Austereo Ltd (1997) 24 ACSR 185 Re Walker (as liquidator of One.Tel Ltd) [2002] NSWSC 705
PARTIES :	Roderick Mackay Sutherland - Plaintiff Dexion (Australia) Pty Limited - First Defendant John Fairfax Publishing Pty Limited - Second Defendant Francis Daniel Spencer trading as Spencer & Co - Third Defendant Radio 2UE Sydney Pty Limited - Fourth Defendant Deputy Commissioner of Taxation - Fifth Defendant
FILE NUMBER(S):	SC 5448/02
COUNSEL:	Mr F. Gleeson - Plaintiff Mr C.R.C. Newlinds - First to Fourth Defendants Mr M.R. Aldridge SC - Fifth Defendant
SOLICITORS:	Piper Alderman - Plaintiff Henry Davis York - First to Fourth Defendants ATO Legal Practice - Fifth Defendant