03 May 2019
This appeal to the full Federal Court involved the unsuccessful application of a newly appointed liquidator for an extension of time to possibly bring an application for unreasonable director-related transactions. The transactions in question were the subject of a Deed of Release and Settlement that had been entered into by the former liquidator.
In 2014, North Shore Property Developments Pty Ltd (Company) sold four apartments and four garage spaces for a total of $1.62m to Mr Eddy Haddad, the brother of the director of the Company, in circumstances where the apartments were said to be incomplete and with significant defects. Mr Haddad undertook rectification works and later sold the apartments and two of the garage spaces for a total of $4.069m. The Company was later placed into liquidation and Mr Iannuzzi was appointed liquidator.
In 2017, the liquidator made demand on Eddy Haddad for, initially, $322,508 in respect of the alleged unreasonable director related transaction and, later, for $7.55m for the value of the alleged uncommercial transactions for the sale of the four apartments. A resolution of these claims was reached between Eddy Haddad and the liquidator without any proceedings being issued.
A Deed of Settlement was entered under which Eddy Haddad paid $32,500 in consideration of a full release from the liquidator.
Subsequently, Mr Iannuzzi was replaced on application of the Commissioner of Taxation and the appellant in this proceeding was appointed as liquidator. On 3 October 2017, the newly appointed liquidator accessed Mr Iannuzzi’s files and conducted a preliminary review. She considered there was a real and not merely speculative prospect that the transactions the subject to the Deed were voidable.
Accordingly, she applied for an extension of time to bring an application for repayment of voidable transactions before the limitation period expired on 28 December 2017.
This decision considered section 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act), which provides the court with discretionary powers to extend the time in which a liquidator may bring an application under the voidable transactions regime.
In exercising this discretion the court is required to consider:
Regarding the second factor, the Court is only required to form a preliminary view of the merits to ensure there are reasonable prospects, so as to avoid unfairly exposing the defendant to the continuing prospect of litigation.
Liquidators most commonly seek such an extension of time to allow further investigations to be undertaken. Where a liquidator seeks an extension to enable them to decide whether or not to bring proceedings, a preliminary enquiry into the merits of consequent proceeding may not be necessary.
The trial judge held that:
meaning that there was no prospect of success in any future claim for the alleged potential unreasonable director-related transactions. This was fatal to her application.
The trial judge also considered the investigation and settlement by the former liquidator, and the time that had passed since the transactions, meant that a real and substantial prejudice would occur if an extension were granted.
In dismissing the appeal, the Court held:
This case emphasises the discretionary nature of the power under section 588FF(3)(b) of the Act and highlights the balancing exercise to be undertaken by the Court in determining such applications.
It is also a clear reminder that courts will not grant extensions of time lightly, even in circumstances where the delay in bringing the claim may have, on its face, valid explanation (such as a recent appointment). Nor will courts be minded to look behind investigations or terms of settlement entered into by practitioners who are later replaced, without valid grounds for doing so.
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