Arnautovic & Anor as joint liquidators of Australian Coal Technology Pty Ltd... [2009] NSWSC 233 | Case summary

1636/09 SULE ARNAUTOVIC & ANOR AS JOINT LIQUIDATORS OF AUSTRALIAN COAL TECHNOLOGY PTY LIMITED & ANOR v NICK NICHOLA & ORS trading as MIDDLETONS LAWYERS & 3 ORS JUDGMENT 1 The first plaintiffs are the liquidators of Australian Coal Technology Pty Ltd ("ACT"), having previously been the administrators under Part 5.3A of the Corporations Act 2001 (Cth). 2 The "relation-back day" in relation to the winding up is 3 March 2006. 3 By originating process filed on 20 February 2009, the liquidators seek the following order: "An Order that, pursuant to section 588FF(3)(b) of the Act, the period within which applications under section 588FF(1) of the Act may be made against the Defendants or any of them be extended up to and including 3 September 2009 or such further date as this Honourable Court may determine." 4 On 23 March 2009, the liquidators pressed that application in respect of two of the defendants, Multotec Pty Ltd (second defendant) and David Brown Gear Industries Ltd (fourth defendant). 5 Three things may be said at the outset about this application under s 588FF(3)(b) for extension of the s 588FF(3) limitation period in respect of those two defendants. First, the application was itself made within what s 588FF(3)(b) now calls "the paragraph (a) period". Second, the application, relating as it does to identified and named persons, is not an application "in gross" or a "shelf application" of the type in respect of which appeal proceedings in the High Court of Australia are pending (see Ansell Ltd v Davies [2008] HCA Trans 373). Third, it has been sufficiently shown that each of the second defendant and the fourth defendant has been served and has chosen not to seek to be heard on the application. 6 Since there is no reason to hold back from determining the application as it relates to the second and fourth defendants, I proceed to do so. 7 It was submitted on behalf of the plaintiffs that the considerations relevant to an application of this kind remain those identified by Austin J in Green v Chiswell Furniture Pty Ltd [1999] NSWSC 608 as emerging from the judgment of Finn J in Taylor v Woden Construction Pty Ltd (FCA, unreported, 23 September 1998). I accept that that is so, subject to the addition of some criteria emerging from the decision of the Court of Appeal in BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322. The relevant matters are, in my respectful opinion, now those referred to in paragraphs [52] to [55] of the judgment of White J in New Cap Reinsurance Corp v Reaseguros Alianza SA [2004] NSWSC 787; (2004) 186 FLR 175: "[52] Austin J summarised the principles upon which the Court's discretion under s 588FF(3)(b) should be exercised. Referring to the judgment of Finn J in Taylor v Woden Constructions Pty Ltd (Federal Court, 23/9/98, unreported), his Honour said: The following propositions, with which I respectfully agree, emerge from that case: (a) ordinarily, the issues raised on an extension application are threefold: (i) the explanation for the delay in bringing the proceedings; (ii) a preliminary review of merits of the foreshadowed proceedings - that is, an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit; (iii) whether the likely actual prejudice resulting form the grant of an extension is sufficiently substantial to outweigh the case for granting an extension; (b) where the liquidator's purpose in seeking the extension of time is simply to put himself into a position where he can properly decide whether or not to bring proceedings, a preliminary inquiry into the merits of any consequent proceedings may not always be necessary. [53] The principles were also considered by the Court of Appeal in BP Australia Ltd v Brown (2003) 58 NSWLR 322 at 356-358. The Court of Appeal described the question as being what was fair and just in all of the circumstances having regard to factors which include the plaintiff's explanation for delay and whether the defendant would suffer prejudice as a result of the extension, other than the prejudice of being required to repay money if the proceedings succeed. [54] In assessing what is fair and just in all the circumstances, regard must be had to the reason for the imposition of the limitation period, both as applicable to limitation periods generally and those relevant to s 588FF(3)(b). In Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541, McHugh J at 552-553 identified four broad rationales for the enactment of limitation periods, namely: First, as time goes by, relevant evidence is likely to be lost. Second, it is oppressive, even 'cruel', to a defendant to allow an action to be brought long after the circumstances which gave rise to it have passed. Third, people should be able to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them Insurers, public institutions and businesses, particularly limited liability companies, have a significant interest in knowing that they have no liabilities beyond a definite period. … .. The final rationale for limitation periods is that the public interest requires that disputes be settled as quickly as possible. (Citations omitted). [55] In Itek Graphix Pty Ltd v Elliott (2002) 54 NSWLR 207 at 224, Ipp AJA identified the issue of prejudice as being one which ordinarily should be of paramount importance. But the absence of prejudice is not itself decisive. It is rather a relevant factor to be taken into account in the exercise of the general discretion. ( BP Australia Ltd v Brown at 358). There is an onus on the applicant to show why it is fair and just that the general rule established by s 588FF(3)(a) should not apply." 8 The proceedings that the liquidators have in contemplation against each of the second defendant and the fourth defendant are preference recovery proceedings under s 588FF(1) based on s 588FA, s 588FC and s 588FE. Mr Arnautovic, one of the liquidators, deposes that a large number of transactions involving payments to unsecured creditors were undertaken by ACT in the six months before the relation-back day. With limited funds available, the liquidators concentrated first on transactions involving more than $100,000. Some fifty cases requiring investigation were identified. Examinations were conducted. Some parties were seen to have valid defences to preference recovery claims. Settlement was reached with others. Proceedings were commenced in March 2008 against those of the fifty considered worth suing. 9 In those proceedings, an order was made for separate determination of the question of ACT's solvency. That matter was argued on 3 March 2009. Mr Arnotauvic says that he expects to require a period of not less than four weeks after that determination in order to decide whether to pursue preference recovery proceedings against the defendants with which this application is concerned. As it happens, the court's decision on the separate question in the existing preference recovery proceedings is being delivered at the same time as this judgment. That decision is that ACT was insolvent throughout the period 30 November 2005 to 3 March 2006. 10 The liquidators' investigations to date indicate that they may have claims against the second and fourth defendants of $87,998.52 and $322,472.60 respectively. 11 The liquidators have sent letters of demand to the second and fourth defendants. There is, in each case, an allegation that the particular payments were an unfair preference and a demand that payment be made. A copy of a solvency report accompanied each demand. 12 I am satisfied that the liquidators have appropriately prioritised their work. The explanation for not commencing proceedings against the second and fourth defendants at an earlier point is a satisfactory explanation. 13 A preliminary review of the merits of the foreshadowed claims is assisted by the determination of the separate question in the proceedings already commenced. The decision that ACT was insolvent throughout the relevant period reduces the area of potential controversy in any proceedings against the second and fourth defendants. By force of s 588E(8), that decision will apply to determine the insolvency question in any new proceedings the liquidators may commence against the second and fourth defendants. The issues in any such proceedings will therefore be substantially narrowed. 14 Several factors combine to satisfy me that the extension sought should be granted. Those factors are: 1. The period of extension sought is relatively short, being only six months, so that a limitation period of three years and six months is substituted for a limitation period of three years. 2. The case is therefore not one in which the passage of time is likely to have any particularly deleterious effect. 3. Because the matter of insolvency will not be litigated, any proceedings in fact commenced will lie in relatively short compass. 4. The liquidators' policy of prioritising work in the way I have described provides a reasonable explanation for the circumstance that proceedings were not commenced against the second and fourth defendants within the three year period. 5. The only perceived prejudice to the second and fourth defendants is the ordinary prejudice of facing the possibility that they may have to pay the moneys claimed. 6. The second and fourth defendants were aware, before the three year period ended, that this application was likely to be pressed. They were therefore not in a position where they could not have believed that the possibility of action had evaporated. 7. The second and fourth defendants have not appeared to oppose the present application, despite having had an opportunity to do so. 15 The orders of the court are as follows: 1. Order pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) that the period within which an application may be made under s 588FF (1) for an order against Multotec Pty Ltd be the period ending on 3 September 2009. 2. Order pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) that the period within which an application may be made under s 588FF (1) for an order against David Brown Gear Industries Ltd be the period ending on 3 September 2009. 3. Order that the plaintiffs' costs of the application for these orders be costs in the winding up of Australian Coal Technology Pty Limited. **********

Arnautovic & Anor as joint liquidators of Australian Coal Technology Pty Ltd v Nichola & Ors trading as Middletons Lawyers

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