Marsden (liquidator) v CVS Lane PV Pty Limited, in the matter of Pentridge Village Pty Limited

Federal Court of Australia|2018-02-02|Before: Mr J, Gleeson J

Counsel for the Plaintiff: Mr IR Pike SC with Mr J Foley

Solicitor for the Plaintiff: Dentons Australia Pty Limited

Counsel for the First and Second Defendants: Mr EAJ Hyde

Counsel for the Third Defendant: Ms M Collins

Solicitor for the Third Defendant: Baker & McKenzie

ORDERS NSD 1243 of 2017 IN THE MATTER OF PENTRIDGE VILLAGE PTY LIMITED (IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED) (CONTROLLER APPOINTED) BETWEEN: PETER WILLIAM MARSDEN IN HIS CAPACITY AS LIQUIDATOR OF PENTRIDGE VILLAGE PTY LIMITED (IN LIQUIDATION) (RECEIVER AND MANAGER APPOINTED) (CONTROLLER APPOINTED) Plaintiff

AND: CVS LANE PV PTY LIMITED (ACN 159 226 847) First Defendant

CVS LANE PV MEZZ PTY LIMITED (DEREGISTERED) (ACN 154 856 890) Second Defendant

GRESHAM PROPERTY INVESTMENTS LIMITED (ACN 078 108 086) Third Defendant

JUDGE: GLEESON J DATE OF ORDER: 2 February 2018

Pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) ("Act"), the time in which any application may be made under s 588FF(1) of the Act against: (a) the first defendant; (b) the second defendant; and (c) the third defendant, be extended to 30 September 2018.
The matter be listed for case management on 16 February 2018 at 2.15 pm.
Costs are reserved.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

AND: CVS LANE PV PTY LIMITED (ACN 159 226 847) First Defendant

CVS LANE PV MEZZ PTY LIMITED (DEREGISTERED) (ACN 154 856 890) Second Defendant

GRESHAM PROPERTY INVESTMENTS LIMITED (ACN 078 108 086) Third Defendant

JUDGE: GLEESON J DATE OF ORDER: 16 FEBRUARY 2018

The application for reinstatement of the second defendant be refused. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GLEESON J: 1 The plaintiff ("Mr Marsden" or "liquidator") sought an order extending the time in which any application may be made against each of the defendants under s 588FF(1) of the Corporations Act 2001 (Cth) ("Act"), and an order for reinstatement of the second defendant ("CVS Mezz") pursuant to s 601AH(2) of the Act. 2 The applications were opposed by the first and second defendants ("CVS parties"), but not by the third defendant ("Gresham"). The CVS parties' opposition to the extension of time was based primarily upon the contention that Mr Marsden had not adequately explained the delay in conducting the investigations now proposed to be undertaken. 3 On 2 February 2018, after hearing the applications I made an order extending time. I reserved my decision on the reinstatement application. I also reserved the question of costs. 4 The following are my reasons for decision on both applications.

Background facts 5 The plaintiff ("Mr Marsden" or "liquidator") is the liquidator of Pentridge Village Pty Ltd (in liquidation) (receiver and manager appointed) (controller appointed) ("Pentridge"). Mr Marsden was appointed as liquidator on 15 April 2016, following the resignations of the previous joint and several liquidators, Andrew Beck and Paul Stewart. 6 Pentridge was involved in the development of a parcel of real estate situated on the old site of the "Pentridge Prison". Originally, the development was funded by a loan of approximately $85 million from Capital Finance Australia Limited ("CFAL loan"). 7 In around mid-2012, the directors of Pentridge sought to re-finance the CFAL loan. In about May 2012, agreement in principle was reached as between Pentridge and CFAL for a special purpose vehicle associated with Pentridge to take an assignment of the CFAL loan. In June 2012, the CFAL loan was assigned to AET SPV Management Pty Ltd ("AET"). 8 In August 2012, Daimleigh Capital Pty Ltd ("Daimleigh"), being a special purpose entity formed by the majority interest holders in Pentridge, entered into a suite of financing facilities to obtain the funds necessary to obtain an assignment of the CFAL loan from AET. 9 According to the written submissions of the CVS parties: (1) The CVS parties provided finance to Daimleigh by way of: (a) A facility agreement between the first defendant ("CVS"), Daimleigh and Pentridge as security provider, entered into on 28 August 2012; and (b) A mezzanine finance agreement between CVS Mezz, Daimleigh and Pentridge as security provider, entered into on 28 August 2012 ("facilities"). (2) Pentridge is a guarantor and security provider in respect of all monies owing under both facilities. It granted security over all of its property with respect to its obligations under the facilities. (3) On 28 August 2012, CVS entered into a Call Option Deed whereby the shareholder in Daimleigh and the unit holder in the Daimleigh Capital Unit Trust granted CVS a call option in respect of the shares in Daimleigh and the units in the trust. This call option could be exercised if, at the end of the "Grace Period" as defined in the Call Option Deed, the "Outstanding Amount" had not been re-paid in full. 10 The liquidator noted that, under the Call Option Deed, the option price was $1 per share and per unit in the associated trust. The total price payable by CVS to exercise the option was $102. The liquidator contends that the effect of the Call Option Deed was to give CVS the ability to acquire Daimleigh for a notional sum in the event the monies advanced to Daimleigh were not repaid to CVS within 18 months of the funds being advanced. 11 Around August 2012, Daimleigh also entered into a loan facility with Global Consulting Services Pty Ltd ("GCS") as lender and Pentridge and another as guarantors. 12 In about October 2012, Daimleigh entered into a further facility with Gresham ("Gresham facility") on terms that included a guarantee and security interest granted by Pentridge. 13 The rights of Daimleigh's various funders were governed by an inter-creditor deed, first entered into in November 2012, which effectively provided that CVS would have first priority with respect to repayment of its debt; CVS Mezz would have second priority; Gresham would have third priority; GCS would have fourth priority and Daimleigh would have fifth priority. 14 In his report to creditors dated 29 November 2016, Mr Marsden expressed the preliminary view that Pentridge was insolvent from at least as early as 27 November 2013 by reference to its default on a $15,000 instalment payment which was due to the Australian Taxation Office ("ATO") under a payment arrangement it had entered into in respect of a $66,875.34 outstanding amount.

"Standstill" fees 15 The CVS parties stated that CVS and Daimleigh entered into "standstill" arrangements in respect of the facilities from approximately February 2014. As consideration for these arrangements, Daimleigh agreed to pay certain "standstill" fees and that the fees would form part of the "Secured Money" for the purposes of the facilities. Consequently, Pentridge's guarantee and security extended to the amount of the "standstill" fees. 16 According to the report to creditors, on 28 February 2014, the CVS parties issued the first of four "standstill" letters to Pentridge following Pentridge's payment default and failure to comply with a demand for payment. The liquidator's written submissions puts the position differently, stating that from around this time, Daimleigh was in default of its obligations to the CVS parties, Gresham and GCS with respect to the loans obtained from those parties. 17 In his July 2017 affidavit, Mr Marsden states: 15. Given that Daimleigh was dependent upon Pentridge for its funds and its only assets were its security over Pentridge's property, prima facie, the failure of Pentridge to pay the amounts due by it to Daimleigh (pursuant to the assigned PV Loan) to enable Daimleigh in turn to pay the amounts due under the Assignment Facilities and Gresham Facility on 28 February 2014, suggests that Pentridge was insolvent at that time. However, this requires more detailed investigation, to determine fully the assets and liabilities of Pentridge, the attitudes of its creditors and of Daimleigh's creditors and all other matters relevant to the prospects of Pentridge and Daimleigh meeting their liabilities … 18 According to the liquidator's written submissions: (1) Between 28 February 2014 and 28 May 2014, Daimleigh and Pentridge entered into a series of "standstill" agreements with the CVS parties and Gresham. Pursuant to each of these agreements, the CVS parties and Gresham agreed to withhold from enforcing their rights under their loan agreements and securities, in exchange for an agreed "standstill" fee. (2) As a consequence of the "standstill" agreements, the debts owed by Daimleigh and secured by the assets of Pentridge, increased as follows: (a) the debt owed to CVS Mezz increased by $400,000; (b) the debt owed to CVS increased by $100,000; and (c) the debt owed to Gresham increased by $300,000. (3) It is unclear whether the "standstill" fees were capitalised to increase the debts owed by Daimleigh, and secured by the assets of Pentridge, or whether all or part of the "standstill" fees were paid by Daimleigh. However, based on the liquidator's investigations to date, it appears that: (a) the "standstill" fees payable to the CVS parties may have been capitalised in full; and (b) for Gresham, part of the fee may have been capitalised and part of the fee may have been paid.

Option cancellation fee 19 The CVS parties stated that on 24 June 2014, the CVS parties, Daimleigh and Pentridge amongst others, entered into a Side Deed. Recital C to the Side Deed states that the shareholder (Peter Chiavaroli) and the unitholder (Regent Way Pty Ltd as trustee for the P Chiavaroli Family Trust) had requested that CVS agree to refrain from exercising the call option and agree to allow the call option to lapse. Pursuant to the Side Deed, CVS agreed not to exercise its call option under the Call Option Deed and to allow it to lapse in exchange for a fee of up to $850,000. The Side Deed provided that the fee would form part of the "Secured Money" for the purposes of the facility agreement with the effect that Pentridge's guarantee and security extended to the amount of that fee. 20 According to the CVS parties, they further agreed, pursuant to the Side Deed, that the "standstill" continued to apply until 27 June 2014. 21 The liquidator contends that the effect of the Side Deed is that the amounts owing to CVS by Daimleigh as borrower and Pentridge as guarantor and security provider increased by $850,000. As a consequence, the assets of Pentridge became further encumbered in the amount of $850,000 (plus interest). 22 Mr Marsden's view is that Pentridge was probably insolvent when it entered into the Side Deed.

Potential claims 23 The liquidator identified potential claims under ss 588FE and 588FF of the Act with respect to the following transactions: (1) an alleged agreement by Pentridge that the "standstill" fees be capitalised to the debts secured by the guarantees and mortgages given by Pentridge, during the period 28 February to 28 May 2014; and (2) an alleged agreement by Pentridge that the option cancellation fee pursuant to the Side Deed be capitalised to the debts secured by the guarantees and mortgages given by Pentridge, in the sum of $850,000, on or around 24 June 2014. 24 Specifically, the liquidator submitted that the transactions may be voidable pursuant to s 588FE(2) where each of the transactions may have been: (1) an insolvent transaction of Pentridge, in that each may have be: (a) an uncommercial transaction of Pentridge, being a transaction which a reasonable person would not have entered into; or (b) a transaction entered into at a time when Pentridge was insolvent; or (2) a transaction entered into during the six months ending on the relation-back day. 25 The liquidator acknowledges that Pentridge did not incur a direct liability as borrower or payer with respect to any of the above transactions. However, the liquidator observes: (a) section 9 of the Act defines "transactions" in a way that arguably includes the alleged agreements; and (b) "transactions" in s 588FE has been interpreted as extending to any arrangement between two or more parties which produces legal consequences: Universal Financial Group Pty Ltd v Mortgage Elimination Services Pty Ltd (in liq) [2006] NSWSC 1132; (2006) 205 FLR 186 at [119]. 26 Mr Marsden seeks the extension of time to conduct investigations, including by conducting examinations of relevant personnel to see whether in fact there is a claim.

External administration of Pentridge 27 On 17 July 2014, receivers and managers of the company were appointed by VPV Investments LLC, apparently under the terms of the amended inter-creditor deed. 28 On 22 July 2014, an application was filed to wind up Pentridge in insolvency. Accordingly, the "relation-back day" for Pentridge within the meaning of the Act is 22 July 2014: s 91 of the Act. 29 On 20 August 2014, Andrew Beck and Paul Stewart (two former partners of Mr Marsden) were appointed joint and several liquidators of Pentridge by order of the Supreme Court of Victoria. 30 On 1 April 2015, the receivers and managers sold the security properties owned by Pentridge. The liquidator's understanding is that the sale was to be completed on around 30 July 2015, and following completion of the sale, the amounts owing under the CVS facilities were repaid in full other than the option cancellation fee, and further amounts were recovered, the entitlement to which is the subject of dispute. 31 The liquidator contended, and it was not disputed, that it was not until the subsequent determination of the entitlements of creditors to the proceeds of sale of the security properties that any real consideration could have been given to which creditors should be consulted in relation to the provision of funding. 32 On 27 May 2015, CVS Mezz was deregistered on an application made pursuant to s 601AA of the Act. 33 Mr Stewart ceased as liquidator of Pentridge on 1 January 2016. Mr Beck ceased as liquidator of Pentridge on 13 April 2016. As previously noted, Mr Marsden was appointed as liquidator on 15 April 2016. 34 In around May or June 2016, Mr Marsden formed the view that Pentridge may have claims against the CFMEU and CFAL. Steps were taken to file those claims in the Supreme Court of Victoria to avoid the expiry of a limitation period expired on about 30 June 2016. 35 In the period April to November 2016, Mr Marsden's primary focus was on: (1) obtaining an understanding of the history and financial affairs of Pentridge, as well as the external administration to date; (2) obtaining an understanding of the CFMEU claim and the CFAL claim including the risks and benefits to creditors associated with those claims; (3) issuing generally endorsed writs to preserve the causes of action with respect to the CFMEU claim and the CFAL claim; and (4) seeking funding to pursue the CFMEU claim and the CFAL claim. 36 The report to creditors discloses that the costs of the liquidation for the period 20 August 2014 to 18 November 2016 totalled $87,904.33 (excluding GST) of which $44,987.00 relates to investigation tasks. These figures included no amount for Mr Marsden's time.

Identification of potential claims and funding 37 Until June 2017, the liquidation had been substantially unfunded. The liquidator gave the following evidence concerning funding: (1) to date, the only recovery in the liquidation has been an amount of $20,000 recovered from the ATO in relation to an unfair preference; and (2) apart from this recovery, the following amounts were contributed to the liquidation: (a) $7,547.10 contributed by Leigh Chiavaroli (and associates) for costs incurred in relation to the issuing of generally indorsed writs against CFAL and the CFMEU; (b) $11,000 contributed by GCS for various work undertaken; and (c) $85,000 held in the liquidation as security for adverse costs in the proceedings commenced with respect to disputes with CFAL and the CFMEU. 38 The liquidator's evidence was that prior to obtaining funding in June 2017, there were no adequate funds in the liquidation to investigate or obtain advice with respect to the potential claims set out above. In cross-examination, Mr Marsden gave evidence that no steps were taken to compel the production of books and records in the absence of funding. Mr Marsden also gave evidence to the effect that, in the absence of a likely recovery from taking such action, creditors are normally unprepared to provide funding. 39 Mr Marsden deposed that, prior to September 2016, he did not have a copy, and was not aware, of the Call Option Deed or the Side Deed, being the documents relating to the option cancellation fee. 40 Further, prior to that time, Mr Marsden was not aware of any potential claim that Pentridge may have in relation to either the option cancellation fee or the "standstill" fees. 41 In cross-examination, Mr Marsden agreed that the inter-creditor deed was provided to the liquidation in October 2015, and that the deed referred to the "standstill" letters. Mr Marsden accepted that the deed put the previous liquidators on notice of the matters that he now seeks to investigate concerning the "standstill" fees. When asked, he offered no explanation as to why those matters were not investigated in 2015. In the absence of records of any investigation, Mr Marsden accepted that it was likely that the previous liquidators had not conducted any investigation of those matters. Mr Marsden accepted that the inter-creditor deed was in the file when he reviewed it on appointment and had no explanation for why he did not notice it during that review. 42 Mr Marsden's affidavit evidence was that, in early September 2016, he was contacted by solicitors acting for Gresham, regarding potential claims in relation to the option cancellation fee. Mr Marsden's oral evidence was to the effect that the inter-creditor deed was drawn to his attention by a third party, which I take to have been Gresham or its lawyers. 43 Between September and December 2016, Mr Marsden continued to correspond and communicate with Gresham's solicitors and by 10 November 2016, Mr Marsden formed the view that: (1) there may be a claim against each of the CVS parties in relation to the "standstill" fees and the option cancellation fees; and (2) it would be necessary to obtain advice with respect to those claims. 44 Between December 2016 and February 2017, Mr Marsden obtained advice in relation to the potential claims and, consequently, instructed lawyers to prepare a draft funding agreement for Gresham as prospective funder "in relation to funding enquiries and investigations" in relation to the potential claims. After negotiations, a formal funding agreement was executed as between the liquidator and Gresham dated 19 June 2017. 45 On 10 May 2017, Mr Marsden's lawyers were approached by GCS regarding potential claims against Gresham with respect to the "standstill" fees. Mr Marsden's evidence was that he was not aware of any potential claims against Gresham with respect to the fees prior to this. Consequently, Mr Marsden entered into negotiations for funding with GCS. A funding agreement was reached with GCS on about 12 July 2017. 46 Mr Marsden's evidence was that, since 19 June 2017, Gresham and GCS have contributed or agreed to contribute sufficient funds to enable investigations and enquiries to be undertaken in relation to the potential claims against the CVS parties and Gresham. In cross-examination, Mr Marsden said that Gresham and GCS have each indicated that they are interested in funding litigation to prosecute the potential claims. 47 In order to progress investigations with respect to the potential claims, the liquidator has, with the Court's leave, obtained and served summonses for examination and production of documents issued to the directors of Pentridge, CVS and CVS Mezz. 48 The liquidator filed the application for an extension of time on 20 July 2017. The application was initially listed for hearing on 30 October 2017 but was adjourned to 2 February 2018 as a result of the flooding of the Law Courts' Building in Sydney.

Complexity of the liquidation 49 Mr Marsden noted the following: (1) Pentridge Village Group consists of eight separate entities. Receivers and managers were appointed over the entire group, while Mr Marsden is the liquidator of Pentridge only; (2) the financing arrangements with respect to the development of the "Pentridge Prison" site are complex; (3) the sale by the receivers and managers of the development involved three vendors including Pentridge; and (4) there have been allegations made in relation to Pentridge since the commencement of the liquidation including: (a) allegations of misconduct by the CFMEU; and (b) an allegation that relevant banking records were destroyed by CFAL.

Inadequacy of books and records 50 The liquidator's evidence was that he has received only a limited quantity of financial records from the directors. The liquidator has requested further records from them including financial records which, as a minimum, Pentridge should have maintained, but those records have not been received. 51 In November 2016, the liquidator was informed by one of the receivers that they had received very limited books and records of Pentridge and no financial records.

Statutory framework 52 By s 588FF(1), where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of s 588FE, the court may make orders specified in s 588FF(1). Section 588FF(3) provides that an application under s 588FF(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. 53 Mr Pike SC emphasised that the position of an unfunded liquidator is affected by s 545 of the Act which provides: (1) Subject to this section, a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property. (2) The Court or ASIC may, on the application of a creditor or a contributory, direct a liquidator to incur a particular expense on condition that the creditor or contributory indemnifies the liquidator in respect of the recovery of the amount expended and, if the Court or ASIC so directs, gives such security to secure the amount of the indemnity as the Court or ASIC thinks reasonable. (3) Nothing in this section is taken to relieve a liquidator of any obligation to lodge a document (including a report) with ASIC under any provision of this Act by reason only that he or she would be required to incur expense in order to perform that obligation.

Exercise of discretion under s 588FF(3)(b) 54 The Court is required to consider what is fair and just in all the circumstances: BP Australia Ltd v Brown [2003] NSWCA 216; (2013) 58 NSWLR 322 ("BP Australia") at [187]. The applicant for the extension must satisfy the Court that it should be granted: BP Australia at [183]. 55 The matters that ordinarily inform the exercise of the Court's discretion are: (1) the liquidator's explanation for the delay in taking action within the three year period provided for by the statute; (2) the merits of the foreshadowed proceeding, assessed by a "preliminary review"; and (3) any likely prejudice that would be suffered if the extension of time is granted: Parker, in the matter of Worldwide Specialty Property Services Pty Limited (in liq) v Worldwide Specialty Property Services Pty Limited (in liq) [2017] FCA 687 at [15]-[16]; Walker and Moloney v CBA Corporate Services (NSW) Pty Limited [2012] FCA 328 ("Walker") at [43]. 56 Counsel for the CVS parties, Mr Hyde, drew attention to the decision in Francis v Bratovich [2008] WASC 242 ("Francis"), as an illustration of a case in which the Court was not satisfied that there was a proper explanation for delay. The Court there accepted (at [15]) that there was no adequate explanation for why it took 29 months for the liquidator to have litigation funding approved. At [11], the Court concluded that the liquidator was not to be criticised for failing to take steps to advance action against the defendants in the absence of funds and with minimal information and no cooperation from the directors of the company. However, the Court concluded (at [13]), in effect, that the liquidator had information on the basis of which it might have been expected that the liquidator would have taken steps to obtain funding. The absence of evidence as to what steps, if any, were taken to obtain such funding was found to be a significant gap in the evidence and a failure to explain the delay. 57 For his part, Mr Pike SC noted that the Court concluded (at [20]) that there was particular prejudice which was a "powerful factor in refusing the extension", and stated (at [21]): I am not satisfied there is a proper explanation for the long period of delay. I am satisfied that the second defendant will suffer real prejudice if the action is allowed to proceed. Weighing these two factors in the balance, and ever mindful of allowing parties who may have participated in insolvent transactions to walk away from a company leaving creditors to bear the loss, I am satisfied that no proceedings ought be sanctioned.

Delay 58 In Parker at [19], Lee J set out the following propositions concerning the question of delay and its relevance to assessing what is fair and just in all the circumstances: (a) in assessing what is fair and just in all the circumstances, in the context of an extension application under s 588FF(3)(b), regard must be had to first, the public policy underlying the imposition of limitation periods generally; and secondly, in relation to s 588FF(3)(b) in particular; (b) as to limitations generally, four broad rationales for the enactment of limitation periods can be identified: first, as time goes by, relevant evidence is likely to be lost; secondly, it is oppressive to a defendant to allow an action to be brought long after the circumstances which gave rise to it have passed; thirdly, people should be able to arrange their affairs and utilise their resources on the basis that claims can no longer be made against them; fourthly, it is in the public interest requires that disputes be settled as quickly as possible; (c) as to the particular context of s 588FF(3)(b): (i) a broader public interest is 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 and, to quote Spigelman CJ in BP Australia … at [113] to [114]: ...(c)ommercial life must at some stage rule off the past and focus energy on the future...... 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. (ii) where conflicting interests have to be balanced, the eventual loss of the ability to make a relevant claim for a voidable transaction may be less important 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; (iii) importantly … in Arthur Andersen Corporate Finance Pty Limited v Buzzle Operations (In Liq) (2009) NSWCA 104 (at ([93]), Ipp JA expressed the view, that the deliberate decision to allow a writ to become stale after a limitation period had expired would be a powerful factor against extending time for service, noting that any prejudice suffered in such circumstances would be "self-inflicted". Consistently with this notion, a seemingly deliberate decision on the part of a liquidator not to pursue, in a timely fashion, the investigations for which an extension is sought, is a decision of a similar kind, such that any prejudice occasioned might also be said to be self-inflicted: see Ward J in Clarecastle at [141]. 59 At [21], his Honour stated: Consideration of delay on the part of a liquidator as part of the discretionary mix can be gleaned from many cases (including the judgment of Finn J in Taylor v Woden). Identifying operative delay and assessing its seriousness is a necessarily fact dependent analysis, but from the cases, reference has often been made to matters such as the complexity of the company's affairs and records (or lack thereof); the financial resources to fund an investigation; and the complexity of the investigation including whether advice is needed and whether examinations are necessary or desirable.

Merits 60 Concerning merits, what is required 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": Walker at [44] citing Green v Chiswell Furniture Pty Ltd (in liq) [1999] NSWSC 608 at [15]. However, a review of the merits may be unnecessary if the purpose of the application for an extension of time is to allow the liquidator time in which to properly decide whether or not to bring the proposed proceedings: Walker at [44]. 61 In Taylor v Woden Constructions Pty Ltd [1998] FCA 1228, Finn J said: Where the liquidator is not in a 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…it will be sufficient if he can say "I do not know if I do, but there is reason to inquire".

Prejudice 62 As to prejudice: (1) "Ordinarily, the issue of prejudice will be of paramount importance": BP Australia at [192] citing Ipp AJA in Itek Graphics Pty Ltd v Elliott (2001) 54 NSWLR 207; (2) "But the absence of prejudice is not in itself decisive. It is rather a relevant factor to be taken into account in the exercise of the general discretion": New Cap Reinsurance v Reaseguros Alianza SA [2004] NSWSC 787; (2004) 186 FLR 175 at [55]; (3) "The absence of prejudice is a relevant factor to be taken into account in the exercise of so generally expressed a discretion": BP Australia at [193].

Consideration 63 The relation-back day for Pentridge is 22 July 2014. Accordingly, the time for the liquidator to bring a claim under ss 588FE and 588FF or to apply for an extension of time pursuant to s 588FF(3)(b) expired on 22 July 2017. 64 The CVS parties did not dispute that the Court can make an order extending time, notwithstanding that the time has expired between the filing of the extension of time application and the making of any such order: cf. Onefone Australia Pty Ltd v One.Tel Ltd [2007] NSWSC 268; (2007) 61 ACSR 429 at [36]. 65 Mr Marsden submitted that he only sought a relatively short extension of time. Initially the extension was sought until 30 June 2018 but, in the light of the delay in hearing the application, he sought an extension until 31 December 2018. 66 The liquidator identified the following as reasons for the delay in investigating the potential claims: (1) the insufficient funds available in the liquidation to enable him to conduct the required enquiries in relation to the potential claims; (2) the complex nature of the liquidation; and (3) the inadequacy of the books and records provided to the liquidators to date. 67 Contrary to the submissions made on behalf of Mr Marsden, in my view, the delay to be explained covers the whole of the liquidation, especially where the previous liquidators and Mr Marsden are members of the same firm. 68 There was no evidence of any particular circumstances concerning the former liquidators to explain the apparent lack of progress of the liquidation prior to their respective retirements. On the evidence before me, the main reason for the liquidators' delay has been a lack of funding which only became available in June 2017 following approaches to the liquidator by two creditors. There is no suggestion that the liquidator did not act promptly once funding finally became available. 69 The CVS parties raised the following issues: (1) the liquidator could have done more to investigate the potential claims without funding, noting that they had apparently done significant work unfunded. In essence, the point was that, where the liquidators had chosen to do other work without funding, Mr Marsden had not explained satisfactorily why the potential claims had not also been investigated unfunded; and (2) the liquidator had not explained why he had not sought and obtained funding for the proposed investigations sooner. 70 The liquidator's explanation for the delay was not comprehensive: in particular, it did not address what was done prior to Mr Marsden's appointment as liquidator. However, the principal explanation was the lack of funding and there was evidence that the liquidators did significant unfunded work well in excess of available funds prior to November 2016. 71 The potential claims were identified to the liquidator by Gresham and GCS respectively, in September 2016 and May 2017. Unlike Francis, the evidence did not reveal that the liquidators could have identified the potential claims earlier without undertaking significant work for which they were not funded. 72 I accept that the liquidation is somewhat complex and that the liquidators have been hampered by the lack of books and records: these are matters that were obstacles to the liquidators conducting unfunded investigations. However, in my view, the real obstacle to progress has been the lack of funding. 73 I accepted that the lack of funding provided an adequate explanation for the liquidator's failure to identify the option cancellation fee for investigation prior to September 2016, where the liquidator was not provided with proper books and records. I also concluded that, even if the "standstill" fee issue had been identified earlier, lack of funding provided an adequate explanation for the liquidator failing to investigate that matter. In the absence of funding, I did not accept that the liquidator was required to do more to investigate the potential claims. 74 There was nothing to indicate that funding could have been obtained earlier if the liquidator had taken proactive steps to seek funding. I did not consider that the liquidator was required to demonstrate that he had taken such steps in order to provide a satisfactory explanation of the delay. 75 Further, I note that there was nothing to indicate that there was any deliberate decision not to investigate the "standstill" fees albeit it appears that the liquidator was in a position to investigate this matter earlier, subject to funding. 76 On the issue of merit, the CVS parties' submissions were made in writing. I did not accept the submission that the prospects of success must reasonably to be considered to be low on the limited information available, or on the arguments put in the written submissions. Contrary to what appeared to be suggested by those submissions, the fact that the transactions were supported by valuable consideration is not a complete defence to the proposed claims: cf. s 588FG(2). Further, it is not possible to reach a conclusion that the potential claims lack merit by reference to the CVS parties' written submissions on the meaning of "transaction" in the relevant provisions of the Act or the proposition that the alleged agreements did not have any further legal consequences for Pentridge. 77 Based on the matters set out at [14] to [23], I was satisfied that the potential claims with respect to the "standstill" fees and the option cancellation fee have sufficient merit to warrant investigation. 78 The CVS parties did not point to any particular prejudice that would arise from an extension of time. 79 In those circumstances, I accepted that the liquidators' delay has been sufficiently explained by the lack of funding of the liquidation. The potential claims have sufficient merit to warrant investigation and the facts presently known provide reason to think that the defendants could have expected the relevant transactions to be disputed in the event of Partridge's liquidation, which commenced shortly after the transactions occurred. Two creditors now wish to fund the liquidator to investigate the potential claims and have indicated their willingness to fund litigation of the claims depending upon the outcome of the investigations. Taking these matters into account together with the absence of specific prejudice to the defendants, and balancing them against the rationales that underlying the three year limitation period, I was comfortably satisfied that it was fair and just to grant an extension of time. 80 As to the duration of the extension of time, in his July 2017 affidavit, Mr Marsden expressed the view that an extension of time to 30 June 2018 would balance the need to any proceedings to be commenced quickly against the various tasks that he would need to take in order to decide whether to commence proceedings. The hearing of the application was delayed by about three months as a result of the flood at the Law Courts' Building and, accordingly, I allowed an extension of a further three months, to 30 September 2018. 81 Having regard to the insufficiency of the books and records received by the liquidator to date, I concluded that it was appropriate to grant an extension of time in relation to any application which might be made against the defendants, rather than one restricted to the potential claims identified to date.

Reinstatement 82 In Deputy Commissioner of Taxation; re James Hardie Australia Finance Pty Ltd (Deregistered) [2008] FCA 1181; (2008) 170 FCR 545, Lindgren J said (at [13]): An application under s 601AH for reinstatement of the registration of a company may be made by "a person aggrieved by the deregistration". According to s 601AH(2)(b), it is a condition of the enlivening of the Court's power to order reinstatement that the Court be "satisfied that it is just that the company's registration be reinstated". The Court has a residual discretion whether to make an order. These three matters will need to be considered. 83 The liquidator contended that he is a person aggrieved by the deregistration of CVS Mezz in that the deregistration has extinguished a right of potential value: cf. Callegher v Australian Securities and Investments Commission [2007] FCA 482; (2007) 218 FCR 1 at [50] and [53]. The CVS parties did not dispute that the liquidator is a person aggrieved by the deregistration of CVS Mezz. 84 In Re ERB International (Deregistered) [2014] NSWSC 800 at [5], Brereton J said: The provision that the court "may" order reinstatement if satisfied that it is "just" to do so has been said to confer a broad discretionary judgment on the Court. Relevant considerations include the circumstances in which the company was de-registered, the purpose in seeking its re-instatement, whether any person is likely to be prejudiced by reinstatement, and the public interest generally [Australian Competition and Consumer Commission v Australian Securities and Investments Commission [2000] NSWSC 316, [27]-[28]; (2000) 174 ALR 688, 693; 34 ACSR 232; Promnitz v ASIC [2004] FCA 22, [19]-[20]; JP Morgan Portfolio Services Ltd v Deloitte Touche Tohmatsu [2008] FCA 433, [4]; (2008) 167 FCR 212; (2008) 65 ACSR 636; AMP General Insurance Ltd v Victorian Workcover Authority [2006] VSCA 236]. 85 In Newfront Pty Ltd (Deregistered) [2008] SASC 127 at [9], Gray J stated that, "if positive findings are made on the first two matters, then in the ordinary course an order for reinstatement will be made", citing CGU Workers Compensation (NSW) Ltd v Rockwall Interiors Pty Ltd [2006] NSWSC 690; (2006) 201 FLR 296 at [6], where Barrett J in turn cited WorkCover Authority (NSW) v Picton Truck & Trailer Repairs Pty Ltd [2004] NSWCA 371; (2004) 51 ACSR 102. 86 The liquidator's stated purposes for seeking reinstatement of CVS Mezz are: (1) To seek to obtain documents in relation to the transactions the subject of the potential claims insofar as they concern CVS Mezz by directing enquiries to the directors of CVS Mezz; and (2) If satisfied following the proposed investigations that a claim should be made against CVS Mezz, to bring proceedings against CVS Mezz. 87 The liquidator submitted that, if CVS Mezz were not reinstated, documents could be sought by making enquiries directed to ASIC which would inevitably result in delay and very likely result in the enquiries being of little if any practical value. 88 The liquidator also submitted that, since the directors of CVS Mezz are also directors of CVS Lane, any reinstatement will not have the effect of bringing any new or otherwise uninterested parties into the disputes the subject of the potential claims. 89 Finally, the liquidator undertook by his counsel Mr Pike SC that, if CVS Mezz is reinstated and the liquidator or Pentridge does not subsequently bring a claim against that company, the liquidator will do all things necessary and personally meet any ASIC costs to attend to the deregistration of CVS Mezz. 90 Mr Hyde submitted that reinstatement should not be ordered where documents can be sought from ASIC and no request to ASIC has been made. Further, Mr Hyde argued that the undertaking proffered by the liquidator was inadequate because it does not cover all costs incurred as a result of the reinstatement and subsequent deregistration. 91 In my view, it is premature to reinstate the company for the purpose of bring proceedings against it where the liquidator has not yet decided to bring those proceedings. I am not persuaded that the liquidator's desire to obtain relevant documents provides a sufficient justification for the reinstatement of the company. It is not self-evident that the reinstatement will improve the liquidator's prospects of obtaining relevant documents. In this regard, I note that by s 601AD(5), the former directors of CVS Mezz must keep the company's books for three years after the deregistration. 92 For these reasons, I reject the application for reinstatement of CVS Mezz. I certify that the preceding ninety-two (92) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.

Corporations Act 2001(Cth)ss 545, 588FF(3)

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