19
Mar 2018

Voidable transactions – the one who got delay

The Supreme Court of Queensland recently considered an application under section 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act) in Shepard v HP Industrial Pty Ltd [2018] QSC 10.

The liquidator of HP Industrial Pty Ltd (in liquidation) (the Liquidator) sought to extend the time in which the applicant may commence proceedings pursuant to section 588F(1) of the Act for orders in respect of potential voidable transactions, commonly referred to as a “shelf order”.

In considering the application, the Court considered the decision of Finn J in Taylor, Barry Anthony v Woden Constructions Pty Ltd [1998] FCA 1228 at [6]: –

“Where the liquidator is not in the position to consider the merits but has proper grounds for inquiring into the matter because of suspicion it invites (or that is cast on it) or of the explanation it requires, then provided he can satisfactorily explain his delay in inquiring sufficiently into the matter, he should not be closed out from an extension because he is unable to say he has a meritorious claim.  In some instances, as here, it will be sufficient if he can say ‘I do not know if I do but there is reason to inquire’.”

 The Liquidator raised a number of factors causing the delay in inquiring into the matter, namely: –

  1. Different liquidators were appointed initially who were removed on 6 October 2016 with the Liquidator appointed in their place.  The Liquidator was met with difficulties because the company was part of a larger group of companies, some of which have also been wound up, and the Liquidator had only been able to obtain some documents in respect of the group, and only three documents in respect of the company.
  2. The Liquidator was without funds to pursue his inquiries but was finalising negotiations for a funding arrangement.  As soon as funding became available the Liquidator intended to apply for orders for public examinations.
  3. The Liquidator, having come late to the role, was not aware whether the former liquidators had undertaken any action in respect of possible voidable transactions or whether they had undertaken any real investigation into what are described as “related party” and “associated party loans” set out in the documents he has obtained.
  4. There was a possibility that the former directors of the company may have held some relevant documents (given that they had appeared before ASIC to respond to notices to demonstrate issued under section 206F of the Act in circumstances where ASIC was concerned as to whether there had been poor financial control and record keeping of the company).

The Court was ultimately satisfied that the Liquidator had adequately explained the delay in not being in a position to bring proceedings in time and considered that the six-month extension was reasonable and there was no significant prejudice in granting the extension.

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