Vol 12 (2015) - Issue 4

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Liquidator’s Ability to Seek Shelf Orders in Aid of Voidable Transactions Proceedings Has Not Been Shelved: Fortress Credit Corp (Australia) II Pty Ltd v Fletcher

Introduction
A recent challenge to the power of liquidators to obtain general orders permitting further time for the investigation of voidable transactions has been dismissed by the High Court of Australia ('High Court'), on appeal from the New South Wales Court of Appeal ('NSW Court of Appeal'). The decision in Fortress Credit Corp (Australia) II Pty Ltd v Fletcher1 confirms that s 588FF(3)(b) of the Corporations Act 2001 (Cth) empowers a Court to make an order extending the time for the commencement of proceedings for the recovery of voidable transactions in general terms, without the need to reference or identify a particular party or transaction. The unanimous decisions of both the High Court and the NSW Court of Appeal remove any lingering uncertainty as to the extent and purpose of the extension powers under s 588FF(3)(b) and confirm that in appropriate circumstances, Australian courts will assist a liquidator by granting a broad extension of time for the investigation and commencement of voidable transaction claims.

The recovery of voidable transactions under Australia’s insolvency regime
Australia’s statutory insolvency regime is set out in the Corporations Act 2001 (Cth) ('Act'). As is the case in many jurisdictions, the Act empowers a liquidator to seek to recover certain types of transactions entered into by the insolvent company within a specified period prior to it becoming insolvent. Such transactions are referred to as 'voidable transactions' and the provisions governing their recovery are set out in Division 2 of Part 5.7B of the Act ('Division').
The power of a liquidator to unwind voidable transactions serves to redress the detriment that may be suffered by the general body of creditors as a result of the favourable treatment of certain parties in transactions undertaken during defined periods prior to the commencement of the winding up.2 The Division identifies the type of transactions that may be voidable, the circumstances in which transactions will be found to be voidable and the time periods within which transactions may be liable to clawback by the liquidator. The recovery of voidable transactions is often one of the most valuable claims available to a liquidator.
Section 588FF of the Act is part of this recovery regime and empowers the Court, on the application of a liquidator, to make orders for the recovery of transactions that have been proved to be voidable transactions. However, liquidators who wish to commence proceedings under s 588FF(1) are subject to strict time limitations for the investigation of the company’s affairs and the commencement of claims. An application for orders under s 588FF(1) of the Act is subject to the time limitation set out in s 588FF(3), which provides:
(3) An application under subsection (1) may only be made:
(a) during the period beginning on the relationback 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.