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When three years is not enough

28 June 2013

A liquidator has three (3) years within which to bring an application under section 588FF of the Corporations Act 2011 (Cth) unless an extension is obtained within that period.  Obviously, significant delay or inactivity can occur in an external administration.  In Meares Nominees Pty Ltd (in liq) [2013] FCA 631, the Court granted the liquidators an extension under subsection (3)(b), despite apparent concerns as to the reason for the delay. 

 

Extension sought

The liquidators were required to bring a claim against the defendants by 3 February 2013.  An originating application was filed on 1 February 2013 which was then amended to seek an extension to the limitation period.  The liquidators identified six (6) potential claims they could bring.  They sought the extension so that they could further investigate the potential claims and seek advice to determine whether to institute proceedings.

 

Explanation for delay

While Counsel for the liquidators accepted that lack of funds, on its own, does not justify an extension, it was a factor to be taken into account.

Counsel submitted, and Foster J accepted, that the considerations to be taken into account when granting an extension are any explanation given by the liquidators for the delay, whether the proposed extension will serve a useful purpose and whether any party affected would be likely to suffer prejudice if the extension were granted.

Counsel for the defendants submitted that the delay was extremely serious and unexplained, noting that the liquidators failed to investigate the claims completely or offer a sufficient explanation.

Foster J noted that the only real explanation provided by the liquidators for their inaction was a lack of funds.  His Honour did not accept the liquidators' submission that the defendants were uncooperative.  He noted that the liquidators failed to fully investigate or make sufficient enquiries of the defendants.  Despite this, his Honour stated that the liquidators' explanation must be assessed and weighed in balance of other factors; namely the prospects of success of the liquidators' claims and prejudice to the affected parties. 

 

Extension granted

After weighing the evidence, Foster J stated that all of the impugned transactions could be attacked as insolvent transactions. His Honour noted that "while citizens are entitled to expect certainty and finality in connection with claims of the kind now being sought to be preserved, those considerations carry less weight when the Court is looking at suspicious related party transactions of the kind in play here."

Foster J concluded that, given the highly suspicious nature of the transactions in question, the liquidators' lack of funds, and that there was no relevant prejudice to which the defendants could point, the liquidators' application for an extension should be granted.

 

Comment

This case serves to emphasise that, when seeking an extension under section 588FF, liquidators must provide sufficient explanation for any delay. Citing a lack of funds will likely not, on its own, suffice to justify an extension.  It is important that if liquidators cite this as an explanation for delay, the claims they have against the defendant have real potential to succeed or at least are worthy of further investigation, and there is no likely prejudice to the other parties involved.

 

For more information contact:

Mark Madsen | Partner
Mullins Lawyers
t +61 7 3224 0241
f +61 7 3224 0333
mmadsen@mullinslaw.com.au

Ruth Sainsbury | Graduate
Mullins Lawyers
t +61 7 3224 0382
f +61 7 3224 0333
rsainsbury@mullinslaw.com.au

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