Arnautovic v Nichola

Judgment 1HER HONOUR: This is an application brought by Interlocutory Process filed in Court by leave today. Also filed was an amending Originating Process in these proceedings filed in Court today. 2The liquidators of two companies, Octaviar Ltd and Octaviar Administration, seek an extension of the time period within which an application under s 588FF(1) of the Act may be made for transactions involving those companies. Those applications are made under s 588FF(3)(b) of the Corporations Act 2001 (Cth) and/or Part 36 Rule 16 of the Uniform Civil Procedure Rules 2005 (NSW). 3The background to the present application is that Hammerschlag J made orders on 30 May 2011 pursuant to s 588FF(3)(b) of the Act extending to 3 October 2011 the time within which an application could be made in relation to transactions involving Octaviar Ltd. His Honour did so for the reasons briefly outlined in his Honour's ex tempore judgment on that date. As I understand it, the identification of that particular date as an appropriate date was, at least in part, because it coincided with the three-year period in which claims under s 588FF(1) involving voidable transactions involving Octaviar Administration might be made. No such extension application had then been made in relation to Octaviar Administration. 4Accordingly, the position today is that no order has yet been made, nor has one been necessary, for an extension of time within which Octaviar Administration can bring proceedings under s 588FF(1) but an order has been made in relation to Octaviar Ltd and that time period will expire within a short period of time. In those circumstances, what is sought by Octaviar Ltd is a variation of the orders made by Hammerschlag J on 30 May 2011 so as retrospectively to amend his Honour's order to extend the period of time in the case of Octaviar Ltd through to the same date on which there is the application for an extension of time to bring applications under s 588FF(1) on behalf of Octaviar Administration is now brought. 5The liquidators have read, on the current application, two affidavits sworn by Katherine Elizabeth Barnett, who is one of the liquidators. The first affidavit is sworn on 10 May 2011, which was read before his Honour in relation to the first application for the orders in relation to Octaviar Ltd. There has been a further affidavit sworn by Ms Barnett on 8 September 2011 deposing to what has occurred since then. A short affidavit affirmed by the solicitor acting for the liquidators, Katherine Alison Merrick, was also read. That affidavit, affirmed on 19 September 2011, deposes in general to the notification by the liquidators of this present application to those parties identified as interested parties or which may have been involved in transactions the subject of the proposed recovery proceedings. 6In relation to Octaviar Administration's application under s 588FF(3)(b), the issues raised on such an application were set out by White J in New Cap Reinsurance [2004] NSWSC 787 by reference to the following propositions. Ordinarily the issues to be considered, on the authorities surveyed by his Honour, are threefold: an explanation for the delay in bringing the proceedings; a preliminary review of the 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; and, thirdly, whether the likely actual prejudice resulting from the grant of the extension was sufficiently substantial to outweigh the case for granting an extension. 7His Honour noted that where the liquidator's purpose in seeking the extension was simply to put the liquidator in a position where the liquidator could properly decide whether or not to bring proceedings, a preliminary enquiry into the merits of any consequent proceedings might not always be necessary. His Honour further noted that in BP Australia v Brown (2003) 58 NSWLR 322, the Court of Appeal has said that the ultimate question is what is fair and just in all of the circumstances (having regard to factors including those to which White J had referred). 8On the present application, the explanation in relation to the delay arises broadly out of the complexity of the affairs of the Octaviar Group of companies. The circumstances in which the present liquidators were appointed have been outlined in Ms Barnett's affidavit, in which it is noted that (of the three year period available before the commencement of proceedings without leave under s 588FF(1)), the liquidators were not appointed until some 15 months had passed. 9In Ms Barnett's first affidavit she deposed (at [28]) to the fact that 21 months had proved to be an inadequate period to permit a sufficiently comprehensive and conclusive investigation into all potential and voidable transactions and to commence those proceedings. She noted the major tasks that had been undertaken since the appointment and described the complexity of the matters arising in relation to the Octaviar Group. 10I do not propose to summarise the matters outlined in Ms Barnett's 10 May 2011 affidavit (as updated by the 8 September 2011 affidavit) save to note that it is clear that there has been an extensive amount of work that has been performed by the liquidators since their appointment in seeking to identify potential claims and the position in relation to those claims. It is not the case that the liquidators have chosen to do little or nothing for the period of time leading up to the application for an extension. The transactions that have been identified as at 10 May 2011 as potentially susceptible to challenge and voidable transactions amount to a value in excess of $100 million. 11Since 10 May 2011 what has occurred (apart from further investigation in relation to the claims), relevantly, is that the liquidators have retained an independent expert in Hong Kong for the purpose of preparing an insolvency report. This report has (in other proceedings to which the liquidators are a party in the Supreme Court of Queensland) been ordered to be delivered on or before 21 November 2011. Ms Barnett also notes that she and her fellow liquidator have commenced informal negotiations with certain parties in an attempt to reach a resolution without the need to commence proceedings and in some respects those parties have indicated that the receipt of the insolvency report would be of assistance. 12The reasons for the extension in respect of Octaviar Ltd and the further extension sought in respect of Octaviar Administration are noted at paragraph 31 of Ms Barnett's second affidavit as being the complex accounting and intercompany loan issues which have been uncovered and need to be resolved; that proofs of debt are still being received in the liquidation of Octaviar Ltd and still being adjudicated in both liquidations (and the affidavit has indicated the magnitude of those proofs of debt as being in the billions of dollars); and that there is a need to allow for the finalisation of the insolvency report for the determination of other claims that are not in the nature of voidable transactions but the liquidators consider would once expeditiously be heard together by way of a joint hearing as to the various transactions (for the reasons Ms Barnett has set out in her earlier affidavit). 13I note in relation to the application for orders under s 588FF(3)(b) that there has been a doubt raised in the past as to whether there is power to make orders under that section extending the time for the commencement of proceedings in general terms or in relation to a class of transactions if it is not possible to identify the relevant persons or proceedings. 14In BP Australia v Brown the Court was of the view that orders of that kind could be made. There have been cases that have applied the decision in BP Australia v Brown in various jurisdictions. I have considered briefly the arguments raised in relation to that issue of power in a recent decision at Re Clarecastle Pty Ltd (in liq) [2011] NSWSC 857. I expressed the view in that case that I was bound by the decision in BP Australia v Brown and I remain of that view. I also note that even if I were not of that view, then comity would suggest that I should apply the approach that has been adopted in this regard in other cases. I refer in that regard to the decision of Barrett J in Arnautovic v Nichola [2009] NSWSC 233 and to the other matters to which I referred in the Clarecastle proceedings cited above. 15I am satisfied that the explanation that has been given in relation to the delay in bringing the proceedings is such as would strongly tend in favour of an application for an extension of time in favour of the liquidators in the present proceedings. In so far as the purpose of the extension is to enable the liquidator to obtain the insolvency report and to put the liquidators in a position where they can properly decide as to the potential claims and the particular position in relation to the potential claims, it is not necessary for me to go into a preliminary enquiry as to the merits of any consequent proceedings. I simply note that the liquidators have expended considerable time and effort to date in reviewing the transactions and have formed the view that there are potential voidable transactions susceptible to challenge that it would be in the interests of creditors to pursue. 16As to the issue of prejudice to parties that may be affected by the extension of time, I have also given consideration in recent cases to the issue of what constitutes such prejudice. I note that in Arnautovic Barrett J (in looking at an application for extension of the time period in respect of particular defendants) took into account that it had sufficiently been shown that the defendants had been served and had chosen not to seek to be heard on the application. In Australian Securities and Investments Commission v Karl Suleman Enterprises Pty Ltd (in liq) [2004] NSWSC 1244; (2004) 52 ACSR 103 it was suggested that exceptional circumstances might be necessary in seeking an extension of time where there had been no particular action contemplated against a particular person). 17In that regard, Ms Merrick's affidavit deposes to the fact that prior to the filing of this application notification was given to various entities who had been identified and were involved in the transaction of the proposed application and that, in general, the responses received from those parties were either to take the position that they consented, or that they neither consented nor opposed, or that they did not consent but did not intend to take any position in relation to the present application. I am satisfied that those entities have had such sufficient notice and an opportunity to be heard had they wished to do so on the present application, and I note that the matter was called when it was before me and there was no appearance for any such interested party. 18In relation to Octaviar Administration, where no order has yet been made for the extension of time, I am of the view that it is appropriate to order, and I so order, under s 588FF(3)(b) of the Act, that the time for the making of an application in respect of Octaviar Administration under s 588FF(1) of the Act be extended to 3 April 2012. 19In relation to Octaviar Ltd, the issue is more complicated because an extension of time has already been granted. I have been taken to authority which suggests, as does the wording of s 588FF(3), that there is not power under that section to make successive applications for an extension of time. This matter was considered in Scott v Casual Life Furniture International Ltd (2005) 56 ACSR 218. There, Mandie J referred at [16] to the provisions in the Uniform Civil Procedure Rules 2005 (NSW) which had in Nicholson v Nicholson (1974) 2 NSWLR 59 been held to be wide enough to allow an application for variation of an order even where that application was made by a person other than the absent party. Mr Coles QC, for the liquidators, notes that his Honour did not doubt the existence of the power of amendment. 20Reliance is placed on Rule 36.16 for the present application to vary Hammerschlag J's order so as to insert in lieu of the date "3 October 2011" the date "3 April 2012". I am satisfied that there is power to make such an order on an application of a party other than a party who was absent when the order was made in the first place. That order would need to be made in the appropriate exercise of the Court's discretion having regard to matters such as the impact of the making of the variation (which, as noted in Scott might be suggested to circumvent what would otherwise be the position under s 588FF(3)(b)(iii)). 21Mr Coles notes the strong policy underlying this section in the Corporations Act (to which reference was made by the then Chief Justice in BP Australia v Brown) as to the importance of the expeditious conduct of administrations under this part. I note that in Scott v Casual Life Mandie J was of the view that the defendants there were entitled to expect that the liquidator would obtain only one determinate extension of time under that section and to expect that they would not remain at the risk of losing the benefit of any established time bar by reason of the liquidator having recourse to a general power and discretion vested in the Court to vary any order that was made in the absence of the party affected. 22In the present circumstances the benefit of the established time bar has not yet in effect arisen because there is still some short period of time within which the liquidators in accordance with Hammerschlag J's order could commence proceedings. I am not satisfied that it would be in the interests of the just, quick and cheap determination of the real issues in the proceedings, (that being the overriding purpose with which I must consider the application of the rules for the application) for a variation to Hammerschlag J's order to be refused in circumstances where that would be likely to have the effect of precipitating the commencement of proceedings by the liquidators in circumstances where those proceedings may raise issues relevant both to Octaviar Ltd and Octaviar Administration at a time when the liquidators have not been able properly to determine the claims that may lie and the matters that are relevant to both. I have in mind that Ms Barnett has noted that there is some uncertainty as to whether moneys in the accounts of Octaviar Administration are moneys that were properly referable to Octaviar Administration or Octaviar Ltd, or vice versa. (I add that I consider that the precipitate commencement of proceedings of this complexity is only likely to lead to additional costs in subsequent amendments and the like.) 23I consider that it is appropriate to exercise the discretion under Part 36 Rule 16 in order to vary the order made by Hammerschlag J on 30 May 2011. I note that this does not seem to me to be inconsistent with the basis on which Hammerschlag J earlier proceeded, which was to recognise that the proceedings in relation to Octaviar Ltd and Octaviar Administration should, in effect, run in tandem. 24Accordingly, in relation to Octaviar Ltd's application, I make the orders sought in paragraph 3 of the Interlocutory Process filed in Court today, namely, I order pursuant to Part 36 Rule 16 of the Uniform Civil Procedure Rules 2005 (NSW) that the order made by Hammerschlag J on 30 May 2011 in these proceedings be varied to insert in lieu of "3 October 2011", the date "3 April 2012".