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

Futurepower's business

1. Futurepower was incorporated on 17 March 2003. Since 2 February 2006, Ms Carbone has been its sole director and shareholder.
2. Prior to its liquidation, Futurepower operated a land development business, including in partnership with M&S Investments (NSW) Pty Ltd (M&S). Futurepower and M&S hold, as tenants in common in equal shares, property located at 300 Jardine Drive, Edmondson Park, NSW (the Property).
3. In 2012, Liverpool City Council granted consent to Futurepower and M&S to conduct a subdivision of the Property (such consent later being modified to permit subdivision to be carried out over 3 stages).
4. According to Ms Carbone, lots in Stage 1 of the subdivision of the Property were sold between August and September 2015 for a total amount of $5,709,500. Futurepower did not at that time, or subsequently, maintain a bank account. Ms Carbone deposes that Futurepower's share of the profit from Stage 1 of the subdivision was transferred to her or at her direction in reduction of a debt owed to her by Futurepower.
5. According to Ms Carbone, lots in Stage 2 of the subdivision of the Property were sold between March and April 2017 for a price of $7.039m. Ms Carbone deposes that, as was the case with Stage 1, Futurepower's share of the profits for Stage 2 was transferred to her or at her direction.
6. Futurepower retained a law firm trading under the name Barclays Law Group (Barclays). This firm is owned and operated by Mr Carbone. It appears that, as well as providing legal services to Futurepower, Mr Carbone had some role in relation to Futurepower's management, the nature and extent of which is uncertain. In his affidavit, Mr Carbone deposed that he often gave his wife advice on, and assisted with, Futurepower's business affairs. Between December 2016 and October 2019, Barclays rendered invoices to Futurepower for fees and disbursements totalling $1.29m.

Futurepower goes into liquidation

1. In July 2018, the Australian Taxation Office (ATO) wrote to Futurepower and M&S advising that it would be conducting an audit into their GST and income tax obligations. Futurepower retained PricewaterhouseCoopers (PwC) to prepare submissions to the ATO. In April 2020, the ATO completed its audit and assessed "extra tax" of around $1.365m to be payable by Futurepower.
2. In October 2019, this Court made orders dismissing a claim brought by Futurepower in litigation against an entity known as TRN Group. The Court subsequently ordered that Futurepower pay TRN Group's costs on an indemnity basis. Those costs were not paid and TRN Group issued a creditor's statutory demand which went unsatisfied.
3. Proceedings for the winding up of Futurepower were commenced on 4 February 2021.
4. On 8 March 2021, the Court ordered that Futurepower be wound up in insolvency.
5. Creditor claims exceed $3.5m, including more than $1.5m owing to the ATO and $646,537.53 owing to the TRN Group.
6. Upon entry into liquidation, Futurepower had nominal liquid assets. It had, on its books, a loan to Ms Carbone in the amount of around $1.393m (the Director Loan). It also retains its interest in the Property. Each of the Director Loan and the Property remains subject to ongoing litigation, which is described further below. The Liquidator has proceeded to date on an unfunded basis and has drawn no remuneration. In July 2024, the Liquidator sought and obtained creditors' approval for entry into a funding agreement for the purpose of conducting public examinations.

Investigations by the Liquidator

1. The Liquidator gave evidence of the steps taken to obtain books and records relating to Futurepower, including exhibiting extensive correspondence about those matters with Ms Carbone, Barclays and third parties. The Liquidator was cross-examined at some length about these investigations and the responses received, and the submissions by the Interested Parties focussed on the relevant timeline and the extent of any delay by the Liquidator in pursuing his investigations. It is therefore necessary to provide some detail regarding these matters.

Requests directed to Ms Carbone

1. On 11 March 2021, the Liquidator issued, several days after his appointment, a statutory notice to Ms Carbone seeking delivery of all books and records of Futurepower. The Liquidator also required Ms Carbone to complete a Report on Company Activities and Property (ROCAP).
2. On 6 April 2021, Ms Carbone completed the ROCAP which, among other things, stated that Futurepower's main activity was "Subdivided residential land"; that it had ceased trading as at March 2021; and that it did not operate any bank account. In addition, Ms Carbone indicated in the ROCAP that Futurepower did not keep any electronic records or any paper records. She also indicated that Mr Nick Fontana of the accounting firm John P Natoli & Associates (Natoli) had prepared the most recent income tax return and Business Activity Statement for Futurepower, and could provide copies of Futurepower's financial statements.
3. On 4 May 2021, the Liquidator sought clarification from Ms Carbone on various matters arising from the ROCAP, including whether Futurepower had ever maintained a bank account in its own name. In addition, the Liquidator referred to the indication in the ROCAP that Futurepower did not keep any records (in paper or electronic form), and asked "how financial records were recorded for reporting to the ATO". The Liquidator also requested that Ms Carbone provide "all company correspondence including any email correspondence concerning the property".
4. On 3 June 2021, the Liquidator followed up on this request, having not received a response.
5. On 17 June 2021, Ms Carbone responded by email to the Liquidator's queries. She stated that Futurepower held a joint bank account with M&S, but that she could not locate any other bank details. She also stated that Mr Bilaver of M&S managed the development project on the part of M&S and Futurepower and that most of the paper records and correspondence concerning the Property were sent to him; and that Futurepower's tax affairs and liabilities were handled by Natoli "who possess any relevant records". She also confirmed that Futurepower had never owned any other property over which it had conducted any subdivision activity.
6. Ms Carbone also provided various documents to the Liquidator at this time, including a Costs Disclosure from Barclays and various invoices which were issued by Barclays to Futurepower. One of those invoices which was addressed to Futurepower was for an amount of $299,750 (including GST) and was specified to relate to a different property in Edmondson Park which is owned by Ms Carbone (not Futurepower).
7. On 13 July 2021, the Liquidator sent a further letter to Ms Carbone, noting her statement that Futurepower did not operate a bank account and noting that Futurepower recorded income with the ATO for each of the 2016, 2017 and 2018 financial years. The Liquidator asked for "an explanation as to where this income has been receipted" and requested "all relevant documents and statements regarding the receipt of this income". The Liquidator also indicated that, if this information was not provided within 14 days, he would seek the assistance of the Australian Securities & Investments Commission (ASIC).
8. The Liquidator did not receive any response from Ms Carbone to the request for information regarding where income was receipted, or any documents regarding the receipt of income.
9. On 5 October 2021, the Liquidator lodged a request for ASIC's assistance in the administration of Futurepower, referring to the failure of Ms Carbone to assist. ASIC appears to have written to Ms Carbone on 1 November 2021, leading to a response from Barclays on 11 November 2021. In this response, Barclays stated that Ms Carbone had answered the Liquidator's requests for documents by referring the Liquidator to Natoli and M&S.
10. On 2 February 2022, the Liquidator caused Futurepower to commence a proceeding in this Court against Ms Carbone, seeking recovery of the Director Loan (the Director Loan Proceedings). On 11 April 2022, Ms Carbone filed a defence in which she referred to an agreement between PwC and the ATO, in the course of the ATO's audit of Futurepower, to the effect that certain adjustments in income would be characterised as project management fees which were notionally payable by Ms Carbone to the Company, and pleaded that these book entries did not evidence any indebtedness of Ms Carbone to Futurepower.
11. On 3 August 2022, the Liquidator issued a s 530B notice to Ms Carbone. This was the first request for documents from Ms Carbone since late 2021. This sought, inter alia, copies of all correspondence between Ms Carbone or Futurepower and the ATO, PwC or Natoli; any legal or accounting advice provided to Futurepower in relation to its obligation to pay or account for GST; and all personal bank records for the period 2003 to the present, "for any accounts where you have lent money to [Futurepower], paid expenses on behalf of [Futurepower], or received payment from [Futurepower]".
12. The Liquidator sought this information regarding personal bank records because he had learned from Mr Carbone that payments were made from the sale proceeds for Stage 1 and Stage 2 to Ms Carbone (see paragraph [39] below).
13. On 29 August 2022, the Liquidator followed up, seeking a response to this notice. On 13 September 2022, the Liquidator sent an email to Ms Carbone's solicitors in the Director Loan Proceedings noting that there had been no response to the s 530B notice, and attaching a Notice to Produce for Inspection. The Interested Parties suggested that this Notice to Produce replaced the s 530B notice. However, as set out below, there continued to be correspondence regarding compliance with the s 530B notice.
14. On 17 November 2022, Ms Carbone wrote to the Liquidator's solicitors, refusing to produce her personal bank records on the basis that they "are not books and records of the company".
15. On 10 February 2023, the Liquidator's solicitors wrote to Ms Carbone's solicitors, referring to the s 530B notice and noting that Ms Carbone's solicitors had responded on 3 February 2023 that she had already complied with the s 530B notice. The Liquidator's solicitors sought that Ms Carbone confirm on oath, by 20 February 2023, that there were no further documents to be provided in response to the s 530B notice. The letter added: "We would also be pleased if you would advise on what basis our client shouldn't conduct an examination of your client pursuant to s. 596A Corporations Act 2001 in relation to the examinable affairs of the company."
16. Ms Carbone's solicitors responded on 20 February 2023, stating as follows: "Contrary to order 1 made by Registrar Jones on 6 February 2023, your letter did not specify what documents our clients failed to produce in answer to the section 530B Notice and/or the Notice to Produce. In these circumstances, we presume that your client will not be filing any Notice of Motion and the liquidator should serve his evidence without any further delay. … It is a matter for the liquidator to decide whether he wishes to make an application for public examinations. We do not see why the liquidator would proceed with public examinations in circumstances where he has already sought production of documents using both curial and extra-curial processes with limited success over many months. The liquidator should focus on progressing this case rather than wasting further time pursuing public examinations."
17. The Liquidator did not file any Notice of Motion in respect of the s 530B notice, or engage in any further correspondence about that notice, or pursue examinations at that time.

Requests directed to Barclays (Mr Carbone)

1. On 6 May 2021, the Liquidator issued a statutory notice to Barclays, seeking production of any documents or records regarding the business activities of Futurepower, any files pertaining to any litigation or potential litigation, and all documents pertaining to any legal advice or correspondence provided to Futurepower.
2. On 3 June 2021, having not received any response, the Liquidator followed up on that request. In addition, the Liquidator sought "all account records regarding any trust account transactions in respect of [Futurepower]".
3. On 21 June 2021, Mr Carbone stated in an email that there were no trust account transactions or records for Futurepower. Mr Carbone also asserted a lien over the files for unpaid fees.
4. On 12 July 2021, the Liquidator queried the lack of any trust account transactions, given that Barclays had acted for Futurepower in relation to the sale of the lots. The Liquidator sought confirmation from Mr Carbone that "you have at no point in time received any money on behalf of the Company or processed any income or transactions regarding the Company through you[r] trust account". The Liquidator also disputed the suggestion that a lien could be relied upon in answer to a notice issued by the company's liquidator, referring to s 530B(1)(b) of the Act.
5. On 30 August 2021, Mr Carbone responded that no files could be produced for inspection while the current COVID lockdown was in place. (It was common ground that this lockdown lasted from July to October 2021.) Mr Carbone also stated that the existence of trust account records in relation to "stage 1" - which, as noted above, had involved the sale of various lots in a subdivision of the Property for $5,719,500 - "will be clarified when files are retrieved for inspection".
6. In his email of 30 August 2021, Mr Carbone also told the Liquidator that "the sale proceeds from Stages 1 and 2 were paid to the director [Ms Carbone] to discharge loans to the company", adding: "All acquisition, holding and development costs of Futurepower, were loaned by the director and repaid". As noted above, the provision of this information led to the Liquidator seeking personal bank records of Ms Carbone, which she subsequently refused to provide to the Liquidator.
7. There was an extended back and forth about the production of the files. It is not necessary to go into the detail of the relevant correspondence.
8. By early 2023, Barclays still had not provided all files to the Liquidator. The solicitors for the Liquidator wrote to Barclays on 7 February 2023 seeking "as a matter of urgency" an indication of Barclays' intentions with respect to the s 530B notice, and indicating that they intended to seek instructions from the Liquidator "to compel production from you pursuant to a summons for examination under s.596B of the Corporations Act 2001 (Cth) or an application for delivery pursuant to s.472 of the Legal Professional Uniform Law". A similar statement was made on 3 March 2023.
9. This shows that the Liquidator was, as at February 2023, considering proceeding with examinations, in circumstances where there had been extended non-compliance with requests for documents. There followed further correspondence between the Liquidator and Barclays and documents were provided to the Liquidator on 29 May 2023.
10. Despite having retrieved its files relating to Futurepower, Barclays does not appear to have confirmed to the Liquidator, following such retrieval, whether or not there existed trust account records in relation to "stage 1".

Requests directed to Natoli

1. The Liquidator has also sought to obtain books and records from Futurepower's accountants, Natoli.
2. On 4 May 2021, the Liquidator issued a notice to Natoli, seeking production of books and records of Futurepower. This was followed up on 8 July 2021, in circumstances where no response had been received.
3. On 9 July 2021, Natoli produced financial statements for Futurepower for the previous five years.
4. On 14 July 2021, the Liquidator sent a further request to Natoli. He noted that the financial reports provided by Natoli reported partnership income and requested all applicable partnership entity tax returns. The Liquidator also referred to the Director Loan recorded in the financial statements and requested all documentation regarding this loan. In addition, the Liquidator noted that he had not received a response to a request of 3 June 2021 seeking books and records of M&S.
5. There appears to have been a significant delay by Natoli in responding to these requests.
6. On 22 March 2022, some 8 months after the request of 14 July 2021 had been made, the Liquidator's solicitors wrote to Natoli, referring to the demands for books and records made on 4 May 2021 and 14 July 2021 and noting that Natoli had "failed or refused to provide all documents requested to our client".
7. On 25 March 2022, Natoli responded that, so far as the books and records of M&S were concerned, the directors of that entity had not given approval to Natoli to provide this information to the Liquidator. Natoli also stated that PwC could provide the Liquidator with "working papers for [Futurepower] as they were acting for [Futurepower] and Angela Carbone during this period".
8. The Liquidator received some documents from PwC in March 2022, and subsequently issued a s 530B notice to PwC. In August 2022, PwC responded that they had no further documents relating to Futurepower beyond those already provided.

Outcome of Investigations

1. Having regard to the matters outlined above, the Liquidator was in a position by early 2023 where: 1. Ms Carbone had indicated that Futurepower had no paper or electronic records, and that records relating to Futurepower's business should be sought from M&S and Natoli; 2. the Liquidator had sought documents from M&S, but the directors of M&S had refused to provide any such material; 3. the Liquidator had sought documents from Natoli, who had provided a limited number of financial reports and otherwise said all relevant material was held by PwC; and 4. the Liquidator had sought documents from PwC, who had indicated that they held only limited material (which they provided).
2. In addition: 1. Ms Carbone had not answered the Liquidator's questions about what had happened to the income received from Stage 1 and Stage 2; 2. the Liquidator had subsequently learned from Mr Carbone that payments from these receipts were made to Ms Carbone for expenses which she had paid on behalf of Futurepower; 3. the Liquidator had sought personal bank records from Ms Carbone by way of a s 530B notice, but Ms Carbone refused to provide any of her personal bank statements showing any such receipts or payments, because they were not books and records of the company; and 4. Barclays had indicated that it would provide clarification on whether there were any trust account transactions relating to Stage 1 once it retrieved its files, but took some two years to provide copies of its files to the Liquidator, and did not subsequently provide any such confirmation.

Other Proceedings

1. As set out above, the Liquidator commenced the Director Loan Proceedings against Ms Carbone in this Court in February 2022.
2. Orders were made in the Director Loan Proceedings for Futurepower to file evidence on a number of occasions in 2022 and early 2023. A number of these orders were not complied with, and the deadline for the filing of this evidence was subsequently extended (including by consent). The Liquidator indicated that these delays occurred in circumstances where there were delays by Ms Carbone in providing documents in response to the s 503B notice and the Notice to Produce.
3. Ms Carbone filed her evidence in the Director Loan Proceedings in March 2024. She too had failed to comply with a number of previous orders to do so. Following the service of this evidence, the parties participated in a mediation which was unsuccessful.
4. The Director Loan Proceedings are listed to be heard in December 2024.
5. In addition, there are proceedings in the Land & Environment Court relating to the Property (the LEC Proceedings). In a report to creditors on 8 July 2024, the Liquidator stated that the Property, which is co-owned with M&S, was estimated in the ROCAP to have a realisable value of $1.5m for each party (based on a total realisable value of $3m). However, this valuation was "subject to the land being developed and is not a reflection on the current value of the land in its present state". That is because the Property "has approximately 3,000 tonnes of asbestos laced soil dumped on it". The report added: "As such, any valuation of the Lot and expected realisable value will be impacted, due to the costs of removing the contaminated soil and complying with any additional council and environmental requirements". The report also noted that M&S had been pursuing various parties in the LEC Proceedings seeking, among other things, an order for the land to be remediated.
6. The Liquidator's report stated that, as at 8 July 2024, the LEC Proceedings had not been successful. In his affidavit, Mr Carbone provided further information regarding the LEC Proceedings. Ms Carbone and Mr Carbone are, respectively, the fourth and fifth defendants in the LEC Proceedings. They, together with other defendants, had brought an application to strike out M&S's claims on the ground that those claims were statute-barred. They succeeded at first instance, with orders being made on 16 June 2023 dismissing M&S's summons against them. However, on 7 February 2024, the Court of Appeal upheld M&S's appeal against that decision. As a result, the LEC Proceedings were remitted back to the Land & Environment Court for case management and then hearing.
7. Finally, the Liquidator's report of 8 July 2024 indicated that M&S had agreed to sell the Property by auction, and that a real estate agent had been engaged.
8. Having regarding to the matters set out above, the Liquidator has, to date, been unable to realise the two main assets shown on the books of Futurepower, being the Director Loan and its interest in the Property. In those circumstances, the Liquidator has remained unfunded.
9. When the Liquidator brought this application for an order under s 588FF(3), he indicated, in his supporting affidavit, that he intended to proceed with the examinations without funding, and that his solicitors had agreed to act in relation to the proposed examinations on a speculative basis. However, in July 2024, the Liquidator sought, and obtained, approval from creditors for entry into an agreement for the funding of public examinations into the affairs of Futurepower.
10. An originating process and examination summons have been drafted and await the outcome of this application.
11. The Liquidator seeks a 12 month extension of the period within which to bring any claim under s 588FF(1) of the Act, on the basis that he estimates a further 12 months will be required in order to convene and hold those public examinations, take advice and commence any recovery actions under that provision.

Evidence of Ms Carbone and Mr Carbone

1. Ms Carbone and Mr Carbone oppose the Liquidator's application. Each has given evidence of ill health and the toll that the continued uncertainty about whether any proceedings will be brought is taking on them, particularly in circumstances where they are involved in both the Director Loan Proceedings and the LEC Proceedings.
2. It is unnecessary, in this judgment, to go into detail regarding their respective medical conditions. It is sufficient for present purposes to note the following matters. 1. Ms Carbone's conditions were diagnosed in 2018. She takes a range of medication to deal with these conditions, and this medication has a number of side effects. She has also had surgery and requires further major surgery following which she will require around three months of extensive physiotherapy and hydrotherapy. 2. Mr Carbone's condition commenced in 2021, and requires regular check-ups and medication. 3. Neither Ms Carbone nor Mr Carbone has given evidence to the effect that these conditions have prevented or hampered their ability to participate in the Director Loan Proceedings or the LEC Proceedings. 4. However, each has given evidence to the effect that any further litigation, or the threat of continuing litigation out of the winding up of Futurepower, will cause further stress and anxiety to them and their family.
3. Ms Carbone deposed that the "prolongation of the liquidation and the potential for fresh litigation to be commenced against me on top of the existing litigation the liquidator is pursuing me for in respect of the purported loan receivable payable to [Futurepower] causes me significant anxiety and stress". In addition, Mr Carbone deposed that any extension of time granted to the Liquidator to pursue voidable transactions against him or his wife "has the potential to divert our attention away from and to disrupt our preparation of our defences to the LEC Proceedings".

Relevant Principles

1. Section 588FF(3) of the Act provides as follows: An application under subsection (1) may only be made: (a) during the period beginning on the relation-back 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.
2. It was common ground that the application under s 588FF(3)(b) has been brought within the period specified in s 588FF(3)(b). It follows that there is power to make an order under s 588FF(3)(b) extending the period within which an application under s 588FF(1) may be made. The question for determination is whether, as a matter of discretion, the Court should make the extension order which is sought by the Liquidator.
3. The relevant principles were not in dispute.
4. In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher (2015) 254 CLR 489; [2015] HCA 10 at [24], the High Court observed that: "The function of s 588FF(3)(b), which reflects its immediate purpose, is to confer a discretion on the court to mitigate, in an appropriate case, the rigours of the time limits imposed by para (a). That is a discretion to be exercised having regard to the scope and purposes of Pt 5.7B, characterised in the Harmer Report as the continuing 'policy' which underpinned its recommendations. That policy included the avoidance of transactions by which an insolvent company has disposed of property in circumstances that are regarded by the legislature as unfair to the general body of unsecured creditors. It is, however, a policy qualified in its application by the requirement that liquidators be placed under a reasonable time limitation for taking action under the voidable transaction provisions. A purpose of that qualification, expressed in 'clear and emphatic' terms, is to favour certainty for those who have entered into transactions with the company during the periods in respect of which designated transactions may be voidable. There is, however, no independent basis for the assertion that any extension of time which does not identify a particular transaction or transactions must be an unreasonable prolongation of uncertainty militating against a construction which would allow such an order to be made. The section provides for the exercise of discretion by the court. Questions of what is a reasonable or an unreasonable prolongation of uncertainty and the scope of such uncertainty are more appropriately considered case-by-case in the exercise of judicial discretion than globally in judicial interpretation of the provision."
5. In BP Australia Ltd v Brown (2003) 58 NSWLR 322; [2003] NSWCA 216, Spigelman CJ (with whom Mason P and Handley JA agreed) said that an applicant must satisfy the court positively that an extension ought be made: at [183]. However, nothing in the section "specifies any criterion to be taken into account when exercising the discretion or any other matter which governs the exercise of the discretion": at [182]. His Honour identified the need to determine, in such an application, whether it is "fair and just in all of the circumstances" to grant the relevant extension: at [187]. In considering that issue, the Court should have regard to, on the one hand, the liquidator's explanation for delay and, on the other, the prejudice the defendant would suffer as a result of the extension. His Honour made the following observations (at [101]-[102]): "Where the underlying principle is one of fairness, it is easy to appreciate that the passage of time affects the balance of fairness. The range of pre-liquidation transactions which are subject to avoidance under the statutory regime clearly involve a process of balancing conflicting interests, relevantly, between the general body of creditors on the one hand and, on the other hand, others who have taken advantage of the company including, but not limited to, particular creditors. In some respects the legislative scheme balances these interests. In other respects it leaves the balancing, or rebalancing, of those interests to the courts. The passage of time affects the fairness of a court ordering that an advantage be surrendered, including the application, relevantly for the purposes of the present case, of the principle of equality amongst creditors. The longer a person has retained a particular benefit, the more disruptive it will be to that person to be forced to surrender it. The appropriate balance between these conflicting interests is affected by delay. The passage of time may, of itself, tilt the balance of fairness. It does not necessarily do so and, accordingly, it is appropriate that there be a discretion to extend time."
6. His Honour also commented (at [119]) that: "In a context where conflicting interests have to be balanced, the eventual loss of the ability to make a relevant claim can reasonably be regarded as something to be surrendered, in favour of providing certainty to others who have had dealings with the company, including other creditors, so that they can proceed with their business affairs with an assurance that they are no longer at risk."
7. In New Cap Reinsurance Corp Ltd (in liq) v Reaseguros Alianza SA [2004] NSWSC 787 at [52], White J observed that the matters to be considered in such an application would ordinarily include the following: 1. the explanation for the delay in bringing the proceedings; 2. a preliminary review of the merits of the foreshadowed proceedings, directed to whether they were so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit; and 3. whether the likely or actual prejudice resulting from the grant of the extension was sufficient substantially to outweigh the case for granting an extension. As regards the second of those matters, White J noted that, where the liquidator's purpose in seeking the extension of time was to further investigate to determine whether or not to bring proceedings, a preliminary enquiry into the merits of any consequent proceedings may not always be necessary.
8. This list of factors were referred to, with approval, by Barrett J in Arnautovic & Anor as joint liquidators of Australian Coal Technology Pty ltd v Nichola & Ors trading as Middletons Lawyers [2009] NSWSC 233: at [7]. The relevant factors were also summarised, in similar terms, by Ward J in Re Clarecastle Pty Ltd (in liq) (2011) 85 ACSR 260; [2011] NSWSC 857 at [22]. The Interested Parties relied on observations by her Honour in that case (at [141]) that there had been "a seemingly deliberate decision" on the part of the liquidators "not to pursue, in as timely a fashion as (with hindsight) it is clear that they could have done, the investigations for which an extension is now sought", which might be regarded as akin to a decision to allow the limitation period to expire, "such that any prejudice occasioned [to the liquidator] by the making of that decision might be said to be self-inflicted".
9. In Re Octaviar Ltd Pty Limited (recs and mgrs apptd) (in liq) (2012) 271 FLR 413; [2012] NSWSC 1460 at [64], Black J observed that the time limitations in section 588FF reflect a recognition that the quality of justice may deteriorate where there is delay and there will be a need that potential defendants be made aware of claims against them within a reasonable time and the loss of the ability to make a relevant claim can be justified as providing certainty to persons who had had dealings with the company. His Honour said that: "The Court should consider whether the Liquidators' have diligently pursued the object of disposing of the proceedings in a timely way; used, or could reasonably have used, available opportunities under the rules or otherwise to avoid delay; and reasonably implemented the practice and procedure of the Court with the object of eliminating any lapse of time between the commencement of the proceedings and their final determination... The Liquidators bear the onus of demonstrating why it was just and fair that the time limit prescribed by s 588FF(3) of the Corporations Act should not apply..."
10. The three-year period specified in s 588FF(3)(a) of the Act is an "essential aspect" of the voidable transactions regime: Gordon v Tolcher in his capacity as liquidator of Senafield Pty Ltd (in liq) (2006) 231 CLR 334; [2006] HCA 62 at [40]. In determining what is fair and just, regard must be had to the reason for the imposition of the limitation, both as applicable to limitation periods generally and those relevant to s 588FF(3)(b): New Cap Reinsurance at [54]; Clarecastle at [129].
11. As regards the reason for limitation periods generally, McHugh J made the following observations in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552-553; [1996] HCA 25 (which were referred to in New Cap Reinsurance at [54]; and Clarecastle at [130]): "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."
12. As regards the reason for the limitation period in s 588FF, Hodgson JA observed in Tolcher v Gordon (2005) 53 ACSR 442; [2005] NSWCA 135 at [3] that an important purpose of the limitation period is to make potential defendants aware of claims against them in a reasonable time. In BP v Brown at [112] and [114], Spigelman CJ said that: "There is, in my opinion, a broader public interest to be served by allowing persons who have had dealings with companies which become insolvent to conduct their commercial affairs with a degree of certainty about their exposure to having past transactions unravelled. … The commercial and economic life of the community is sometimes better served by allowing the loss to lie where it falls, so that all concerned may proceed with a high degree of certainty as to their financial position. The passage of time, even the passage of three years, can be seen to legitimately alter the balance of conflicting interests in this regard."
13. However, Spigelman CJ noted that, in considering what is fair and just in all the circumstances, the requirement of commercial certainty on the part of those who have had past dealings with the corporation is to be balanced against the conflicting interests of the creditors of the company in having the company's affairs properly investigation and administered in an orderly fashion: BP v Brown at [171].
14. The Interested Parties placed reliance on White J's observation in New Cap Reinsurance at [55] that the issue of prejudice "ordinarily should be of paramount importance". Nonetheless, it remains the case that each application must be determined not by reference to whether certain factors are present or absent, but in the exercise of the discretion provided by s 588FF(3), on a case by case basis, and having regard to the particular circumstances of each case.

Consideration

1. In his affidavit in support of the application for an extension, the Liquidator stated as follows: "134. As at the date of this affidavit, I consider that I do not have in my possession complete and adequate books and records of the Company despite my comprehensive attempts to obtain such. 135. On that basis, I consider that there are examinable affairs of the Company that each of the Director and Domenic Carbone may have information in relation to and that ought to be examined on oath. I also consider that there are grounds to seek notices of production to each of the Director and Domenic Carbone for the reasons set out above. 136. As such, I have now determined to seek the examination of the Director pursuant to s.596A of the Corporations Act and Domenic Carbone pursuant to s.596B of the Corporations Act. I am informed and verily believe that my solicitors will conduct these examinations on a speculative basis in order to assist me. 137. Exhibited to me at SF3:84 is a proposed Originating Process (the Draft OP) that I intend to file seeking orders for production and for the above proposed examination. 138. The purpose of these examinations is to obtain full and proper copies of the books and records of the Company and to examine the above in relation to the affairs of the Company and its transactions leading up to its liquidation. 139. However, I am unable to complete these examinations and identify potential antecedent transactions before the expiry of the relevant limitation period."
2. As noted above, the Liquidator estimated that he would require "an additional 12 months to conduct the proposed examinations, seek advice and commence proceedings as required".

Delay and explanation for delay

1. The Interested Parties did not challenge the Liquidator's conclusion that he had a basis for deciding to conduct public examinations, or the reasons why he wanted to conduct examinations. Further, they did not raise any issue about the scope of the proposed examinations, as set out in the Liquidator's affidavit; or about the scope of the documents to be sought by the examination summonses; or about the Liquidator's estimate of the time required in order to conduct those examinations, seek advice and commence proceedings.
2. Instead, the Interested Parties contended that the matters upon which the Liquidator relied in concluding that there was a need to conduct examinations (relating primarily to the lack of adequate financial records, despite extensive attempts to obtain such records) were matters known to him in early 2023. By that time, he had been informed by Ms Carbone, PwC and Natoli that they had no further books and records of Futurepower to produce in response to the various notices that had been issued and requests that had been made by the Liquidator, and shortly afterwards the Liquidator received scanned copies of Barclays' files. The Liquidator accepted that he had in mind commencing examinations in around 2023 and, as outlined above, he indicated to each of Mr Carbone and Ms Carbone that he might do so around that time.
3. The Interested Parties submitted that the Liquidator had not given any explanation for his failure to commence examinations at some point in time shortly after his documentary enquiries came to an end in early 2023. They further submitted that, if the Liquidator had commenced examinations in early 2023, then, having regard to the 12-month estimate which he now provides to the Court for completing examinations, obtaining advice and commencing any proceedings, he would have concluded all such steps prior to the expiry of the three-year limitation period (on 4 February 2024).
4. I accept that there is some force in these criticisms. The Liquidator does appear to have reached a point, by early 2023, where he had ceasing making further requests for documents or information from Ms Carbone, M&S, Barclays or the accountants. He was aware, from that point, that there were gaps in the information and documents which had been produced and that it would be necessary, in order to investigate further the affairs of Futurepower, to conduct examinations. Yet the Liquidator did not take this step at that time. No explanation was provided for this delay, other than the Liquidator indicating, in answer to a question in cross-examination, that in 2023 he was awaiting the outcome of the LEC Proceedings.
5. The Liquidator did not identify any reason why the decision whether or not to conduct examinations was dependent on the outcome of the LEC Proceedings.
6. While those proceedings may have had an impact on whether, and when, and for what amount, the Liquidator may be able to realise Futurepower's interest in the Property, the Liquidator acknowledged in cross-examination that funding was not a factor in his decision whether to bring, or when to bring, any examination proceedings. Although the Liquidator has now received creditors' approval for entry into an agreement to fund examinations, the Liquidator had determined, at the time the extension application was made, to proceed with examinations on an unfunded basis and his solicitors had agreed to act for him in relation to those examinations on a speculative basis.
7. While it is regrettable that the Liquidator did not move with greater dispatch to undertake examinations and form a view on the availability of any claims in respect of voidable transactions prior to the expiry of the period set out in s 588FF(3)(a) of the Act, this delay is not a matter which disentitles the Liquidator from obtaining an extension under s 588FF(3)(b), but rather is a factor to be considered when determining whether, in all the circumstances of this case, an extension would be fair and just.
8. In that regard, the following circumstances are relevant. 1. The evidence establishes that the Liquidator was not sitting on his hands from the time of his appointment, but was instead pursuing multiple lines of inquiry in seeking to obtain information and records relating to the business affairs of Futurepower. 2. The steps taken by the Liquidator included issuing notices, and making requests for information, to Futurepower's director (Ms Carbone), solicitor (Mr Carbone), joint venture partner (M&S), accountants (Natoli) and tax advisers (PwC). In some cases, there were extensive delays in answering the Liquidator's requests, requiring follow-up by the Liquidator and repeated requests; in some cases, the Liquidator's requests were refused outright (for example, the request for M&S's books and records and the request for Ms Carbone's personal bank records); and in the case of Barclays, the production of its files relating to Futurepower was completed only some two years after it was first requested, after extensive correspondence with the Liquidator. 3. When the Liquidator raised the prospect of conducting examinations in early 2023, Ms Carbone's solicitors said that the Liquidator should focus on the Director Loan Proceedings, which were then on foot (and in which the Liquidator had not yet filed evidence), rather than conducting public examinations. Following this, the Liquidator proceeded to file and serve Futurepower's evidence in those proceedings. 4. When the Liquidator indicated that he was considering examinations in early 2023, he had not yet received copies of all of Barclays' files. Having received such material in May 2023, he was then in a position to review that material and determine whether to undertake public examinations. By late 2023, the Liquidator had determined to take this step, and gave instructions for the drafting of an originating process for the commencement of the examination proceedings and also for the drafting of examination summonses and orders for production, addressed to each of Ms Carbone and Mr Carbone. Those documents were drafted by January 2024 and the Liquidator brought this application on 1 February 2024, attaching those draft documents to his affidavit in support.
9. Having regard to those matters, while I accept that the Liquidator could have and, in light of the approaching end of the s 588FF(3)(a) period, should have moved with greater urgency to be in a position to commence examinations, I am satisfied that the Liquidator has, in the period since this appointment, conscientiously taken steps to investigate the affairs of Futurepower and has faced a number of obstacles and setbacks in gaining access to documents. Further, when those attempts to obtain documents had come to an end, by around May 2023, the Liquidator did take steps to form a view on whether or not to bring examination proceedings and gave instructions for the requisite documents to be drafted. The period of around seven months between the provision of those documents and the preparation of examination summonses, while longer than desirable, was not so extensive as to lead me to conclude that the Liquidator has not been diligently performing his duties, particularly in circumstances where he has been taking steps in other litigation relating to Futurepower in that period.
10. The Interested Parties placed some reliance on the Liquidator's report to creditors dated 7 June 2021. In that report, the Liquidator estimated that he expected the winding up of Futurepower to end in "6 months to less than 1 year". At the time this estimate was provided, the Liquidator was entitled to proceed on the basis that he would, in due course, receive information and documents in response to the various enquiries he had made, and that this material would be provided in a timely manner. However, as matters transpired, he engaged in correspondence with Ms Carbone, Mr Carbone, Natoli and PwC for another one to two years after this statement was made, and a number of his requests for documentation remain unanswered (such as those in relation to documents held by M&S and Ms Carbone's personal bank records).
11. In his June 2021 report, the Liquidator sought funding proposals from creditors for, among other things, "Examination of the Company's Director [Ms Carbone] and solicitor [Mr Carbone]", including for seeking "legal advice as to the likely success of any potential claims". The Liquidator requested that creditors contact his office within 14 days if they required further information about funding or an assignment of a right to sue, and stated (in bold font): "If no funding proposals or interest in assigning a right to sue are forthcoming, I will finalise the winding up without any further notice to creditors."
12. I do not place much significance on this statement of intention, made at an early stage in the liquidation and, in particular, before the Liquidator had received, let alone reviewed, documents relating to the affairs of Futurepower. Further, it is not known whether, at the time this statement was made, the Liquidator's solicitors had agreed to act in any examinations on a speculative basis. That would plainly have been a significant matter for the Liquidator in determining whether or not to proceed with any examinations in the absence of funding.
13. There is limited explanation by the Liquidator, in his second affidavit of 12 July 2024, regarding any steps taken by him in the period following the filing of his application for an extension order. He deposed that he has taken steps, since early February 2024, to secure a litigation funder for the public examinations, and that this led to a funding agreement which was provided to the creditors for their approval (such approval being given after the date of his affidavit). In addition, he deposed that he has continued to deal with the ongoing Director Loan Proceedings. As noted above, Ms Carbone filed her evidence in those proceedings in March 2024, after a number of delays, following which there was an unsuccessful mediation.
14. Having regard to those matters, I consider that, although the Liquidator could and should have proceeded with greater urgency and, if he had done so, may have been able to complete examinations and form a view about any voidable transaction claims prior to 4 February 2024, the Liquidator did diligently perform his duties during the three-year period following his appointment and, in particular: 1. devoted significant effort in that period to pursuing various lines of enquiry relating to the affairs of the company; 2. experienced delays in getting documents and information in response to those enquiries; 3. after exhausting those enquiries, was in a position where there remained gaps in his knowledge about the company's affairs; and 4. having formed that view, and in circumstances where there was other ongoing litigation involving the company, took steps to ensure that material was drafted for any examination proceedings before bringing an application for an extension order under s 588FF(3).

Merits of claims

1. The Liquidator seeks a "shelf" order, that is, an order extending time for the bringing of any application under s 588FF(1) of the Act, without identifying any particular transactions which may be the subject of such an application. The High Court held, in the passage of Fortress Credit which is quoted above, that such an order may be made in the exercise of the discretion under s 588FF(3).
2. The basis for the extension is to enable the Liquidator to conduct public examinations to consider what claims may be available. In that context, it is unnecessary for the Court to consider the merits of any proposed claims: New Cap Reinsurance at [52]-[55].

Prejudice to Interested Parties

1. I accept the Interested Parties' submissions that any extension order under s 588FF(3)(b) will give rise to uncertainty whether any claims will be brought against them. Further, any such uncertainty is increased in circumstances where (as here) a "shelf" order is sought, such that it is not known which transaction or transactions might subsequently be the subject of any voidable transaction claim.
2. Each of Ms Carbone and Mr Carbone gave evidence to the effect that any ongoing uncertainty about these matters would place them under increased stress, especially in circumstances where each of them has the ongoing medical conditions described in their evidence and where they are parties to the ongoing Director Loan Proceedings and LEC Proceedings.
3. The medical conditions described in the evidence of Ms Carbone and Mr Carbone have existed since before the Liquidator was appointed. Those medical conditions, and the treatment for them, are not said to prevent or hamper the ability of Mr Carbone and Ms Carbone to participate in those other Proceedings. This is not a situation where a person would have been able to participate fully in a proceeding if it had been brought against him or her at a particular point in time, but is, as a result of a supervening medical condition, unable to do so when the proceeding is brought at a much later period in time.
4. While it may be accepted that stress and anxiety are increased in circumstances where a number of proceedings are on foot, the position would not have been significantly different if the Liquidator had commenced examination proceedings in 2023, as the Interested Parties now contend he should have done. Further, the Liquidator has indicated that the examination proceedings may go ahead whether or not the extension under s 588FF is granted, in order to investigate any other available claims. Accordingly, I do not consider that an order extending the time for the bringing of an application under s 588FF(1) of the Act will cause, of itself, significant stress and anxiety to Ms Carbone and Mr Carbone additional to that which they are already experiencing as a result of the ongoing proceedings, their health conditions and the prospect of any examinations by the Liquidator.
5. The Interested Parties also submitted that if a "shelf" extension order is made, they will suffer prejudice because the scope of any claim that may be made under s 588FF is unknown and therefore it may be the case that, by the time such claim is commenced, relevant documents have been lost or memories have faded.
6. I accept that, where there is significant delay in bringing proceedings, prejudice may exist "without the parties or anybody else realising that it exists": Brisbane South Regional at 551. For example, by the time a claim is brought, a party may be unable to recall that he or she previously possessed a document which was relevant to the dispute, let alone what the content or significance of that document might have been for the pleaded issues in the case.
7. However, as the Liquidator submitted, any such "presumed prejudice" by reason of any extension of the period for bringing an application under s 588FF is somewhat ameliorated by the following matters: 1. from a time shortly after Futurepower went into liquidation, the Liquidator has been making detailed requests for information and documents to Ms Carbone, Mr Carbone and the company's accountants; 2. the Liquidator has outlined in his affidavit, and his Counsel has outlined in submissions, matters which the Liquidator would seek to investigate in such examinations; and 3. the Liquidator has provided, in support of this application, draft orders for production which identify the specific documents which he will be seeking to have produced by each of Ms Carbone and Mr Carbone for the purposes of those examinations. The Interested Parties have not, by reference to the list of documents sought in those draft orders for production, identified any documents or categories of documents which they previously held, but no longer hold, due to the passage of time.
8. Further, given that Ms Carbone and Mr Carbone were aware that claims might be brought against them under s 588FF at any time up to 4 February 2024 and were aware before that date (by service of the current application) that the Liquidator was intending to apply for an extension of the period for any such claim, it could not be said, and the Interested Parties did not say, that they had destroyed any relevant documents held by them in the belief that the time for any such claim had passed.

Extension Order

1. Having regard to the principles and matters outlined above, I am satisfied that it is just and fair in all the circumstances of this case that an extension order be made. Although there has been some delay on the part of the Liquidator, this has occurred in a context where he has generally been, over the past three years, diligent in seeking to obtain information from relevant parties about the affairs of Futurepower and has experienced some significant delays and setbacks in his enquiries, and this has occurred in a context where there has been other ongoing litigation involving the company and relating to the Property. Although an extension would cause uncertainty and, with such uncertainty, additional stress for the Interested Parties, they would, to some degree, be subject to such uncertainty and stress irrespective of whether an extension order were made, having regard to the ongoing proceedings in which they are involved and the fact that the Liquidator may conduct examinations whether or not an extension order is made. Further, I need to balance the interest of the Interested Parties in having commercial certainty regarding whether or not claims may be bought against them against the interest of the creditors in the affairs of Futurepower being properly investigated and administered in an orderly fashion.
2. That leaves the question of the form of the order.
3. The Liquidator sought an extension of 12 months from the date that the extension order was made. As outlined above, this was said to be the Liquidator's estimate of the time required in order to conduct examinations, obtain advice and commence any claim.
4. The Liquidator did not provide any breakdown of the steps required to be taken, or the time necessary for each, in order to support this estimate. However, the Interested Parties did not, in cross-examination, challenge the Liquidator's evidence of the time required for these steps. Nor did the Interested Parties advance any submission to the effect that, if an extension order were granted, it should be made for a shorter period.
5. In addition, I am mindful that the Director Loan Proceedings are being heard in December 2024 and that Mr Carbone raised a concern, in his affidavit, that if an extension order is made, it would potentially divert the attention of Mr Carbone and Ms Carbone away from, and disrupt their preparation for, the defence of the prosecution brought against them in the LEC Proceedings. I am also mindful of the evidence given by Ms Carbone and Mr Carbone about their health conditions and, in particular, the major surgery which Ms Carbone requires and the extended period of therapy which is expected to follow such surgery.
6. Having regard to those matters, I am satisfied that an order should be made in the terms sought, that is, extending the period for the bringing of any application under s 588FF(1) by a further 12 months from the date of the order. This will allow examinations to be scheduled having regard to any commitments of Ms Carbone and Mr Carbone in the Director Loan Proceedings and in the LEC Proceedings, and also having regard to their health conditions and any ongoing treatment for those conditions.

Conclusion and orders

1. For the reasons set out above, I am satisfied that it is fair and just, in all the circumstances of this case, to make the extension order sought by the Liquidator.
2. In written submissions, the Liquidator contended that, if the Interested Parties opposed the application, they should be ordered to pay the Liquidator's costs. I do not consider it appropriate, in the circumstances of this case, for such an order to be made. The Liquidator was seeking an extension of time in circumstances where there were criticisms raised by the Interested Parties regarding delay and the lack of an adequate explanation for that delay. I accepted, in part, those criticisms, and concluded that the Liquidator could have and should have proceeded with greater urgency, but was nonetheless satisfied, having regard to all of the circumstances of this case, that the extension order should be made.
3. Given that is so, I consider that the appropriate order is that the Liquidator's costs of this extension application be costs in the liquidation of Futurepower.
4. Accordingly, I make the following orders: 1. Order pursuant to section 588FF(3)(b) of the Corporations Act 2001 (Cth) that the period during which the Plaintiff may make any application pursuant to section 588FF(1) be extended to 15 August 2025. 2. Order that the Plaintiff's costs of the application be costs in the liquidation of Futurepower Developments Pty Ltd (in liq).

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 15 August 2024