MATTHEW DAVID WOODS as joint and several liquidator of BRIERTY LIMITED (ACN 095 459 448) (IN LIQUIDATION) [2022] WASC 310 (14 September 2022)

(a) the directors were entitled to be notified of the liquidators' extension application and had a right to be heard on the application;

(b) the liquidators' failure to so notify gives rise to a right for the directors to have the orders partially set aside;

(c) the appropriate course is to apply in these proceedings for the orders to be partially set aside (in respect of the extension granted for the claim against the Commissioner); and

(d) the liquidators are entitled to have the question of the extension in relation to the claim against the Commissioner sent to a hearing de novo with the directors to be afforded an opportunity to be heard.

Following conferral with the solicitors for the liquidators, the directors and the liquidators have agreed that:

(a) these proceedings (COR 77 of 2020) should be relisted for directions;

(b) the orders the liquidators previously obtained (previous orders) should be partially set aside solely in respect of the extension granted for the claim against the Commissioner;

(c) orders should be made for a hearing de novo of the application by the liquidators for an extension of the requisite limitation period in respect of the claim against the Commissioner; and

(d) for practical purposes, the orders setting aside the relevant part of the previous orders should be stayed pending resolution of the hearing de novo to preserve the status quo in relation to the ultimate substantive proceedings (COR 37 of 2021) while the hearing de novo is being determined.

We do not understand the Commissioner of Taxation to oppose the orders but the Commissioner's solicitors have requested that they be provided with the filed application following which they will confer with the Office of Legal Services Coordination before advising of the Commissioner's position on the orders. Given the Commissioner has not explicitly agreed to the orders, they are filed as 'proposed' rather than 'consent' orders, despite the fact that the plaintiff liquidators consent to the making of the orders.

At this stage, the application includes a costs order in favour of the directors, however, the directors' ultimate position on whether to press for costs will be affected by whether the orders can be made without any need for material substantive argument.

Consequently, we enclose with this letter (for filing):

(a) a notice of appearance in the proceedings;

(b) an interlocutory process;

(c) a supporting affidavit of Richard O'Shannassy;

(d) a memorandum of conferral under Order 59 rule 9 of the Rules of the Supreme Court;

(e) a memorandum of proposed programming orders; and

(f) submissions in support of the directors' interlocutory process.

We respectfully request that the documents be accepted for filing and that the matter be listed for directions. Given the matter was originally heard before Acting Master Strk (as her Honour then was), the Court may be inclined to list the matter for directions before Justice Strk. The directors would be equally happy for the matter to be listed in the Master's List if that is the Court's preferred course.

The contents of this letter have been agreed with the liquidators.

Yours faithfully

BLACKWALL LEGAL LLP

1. The parties negotiated as to how to advance this matter and on 26 May 2022, I made the following orders by consent:

1. Dalton Leslie Gooding, Richard John O'Shannassy, Raymond Lawrence Bushnell and Kenneth John Hellsten (the Directors) have leave to be heard in these proceedings pursuant to Rule 2.13(1) of the Supreme Court (Corporations) (WA) Rules 2004 (WA) (Corporations Rules). 2. Order 1 of the orders made on 21 July 2020 by Acting Master Strk (as her Honour then was) in this proceeding (Extension Orders) be set aside in so far as they affect the Directors (or any of them), and the Commissioner or Deputy Commissioner of Taxation (or any of them), but only in respect of any proceeding brought against the Commissioner or Deputy Commissioner of Taxation in a 'court' (as defined by s 58AA(1) of the Corporations Act 2001 (Cth) (Act)) under s 588FF of the Act to the extent that the proceeding is brought because of the payment of an amount in respect of a liability referred to in s 588FGA(1) of the Act. 3. Order 1 of the Extension Orders, except insofar as it relates to the Commissioner or Deputy Commissioner of Taxation is set aside by these orders, and Orders 2 and 3 of the Extension Orders, stand in their original form. 4. There be no order as to costs in respect of orders 1 to 3 above. 5. The application for the Extension Orders in respect of the proceeding against the Commissioner or Deputy Commissioner of Taxation under s 588FF of the Act be relisted for a hearing de novo. 6. The operation of orders 2 and 3 above be suspended until final orders are made in the hearing de novo. 7. Pursuant to order 2 of the Orders of Strk on 21 July 2020 by 7 June 2022, the Plaintiffs redact, as they consider appropriate, and provide the following documents filed in these proceedings to the Directors by way of email to chris.pearce@blackwall.legal:

(a) the first confidential affidavit of Matthew David Woods sworn 22 June 2020;
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> (b) the second confidential affidavit of Matthew David Woods sworn 17 July 2020;
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> (c) the first confidential affidavit of James Raymond Benetti sworn on 20 July 2020; and
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> (d) the second confidential affidavit of James Raymond Benetti sworn on 21 July 2020.

1. The Directors, until such time as these orders may be varied, amended or otherwise discharged by order of the Court, must:

(a) subject to these orders, keep the Confidential Affidavits confidential at all times;
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> (b) use the Confidential Affidavits only for the purposes of the Proceeding;
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> (c) keep the Confidential Affidavits and any notes, records, memoranda or other documents (including but not limited to any electronic versions thereof) created by them incorporating or referring to, or derived directly or indirectly from, the Confidential Affidavits, in a manner which will preserve the confidentiality of the Confidential Affidavits at all times;
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> (d) not provide or disclose the Confidential Affidavits to any other person other than to their legal representatives, to the Court or as otherwise required by law;
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> (e) only make copies of documents contained in the Confidential Affidavits to the minimum extent possible and keep any copies of the Confidential Affidavits in a manner which will preserve the confidentiality of the Confidential Affidavits at all times; and
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> (f) promptly notify the Plaintiffs' solicitors if the person becomes aware of any unauthorised use or disclosure of the Confidential Affidavits.

1. The Plaintiffs file and serve any additional submissions and evidence in the hearing de novo by 14 June 2022. 2. The Directors file any submissions and evidence in the hearing de novo by 5 July 2022. 3. The hearing de novo be listed for a half day hearing on 10 August 2022 at 10:30am.
2. On 21 June 2020, the plaintiffs filed a minute of proposed orders they sought on the hearing de novo. The orders sought were as follows:
   1. The orders made on 21 July 2020 by Acting Master Strk (Extension Orders) remain valid and binding up to the lifting of the suspension order referred to in order 6 of the orders made on 26 May 2022 by Master Sanderson.
   2. The originating process filed in this Court on 4 March 2021 that commenced the proceeding numbered COR 37 of 2021 was properly and validly filed pursuant to the Extension Orders.
   3. The suspension order referred to in order 6 of the orders made on 26 May 2022 by Master Sanderson shall come to an end the day after the date of these orders.
   4. Pursuant to section 588FF(3)(b) of the Corporations Act 2001 (Cth) (Act), the time for making an application under section 588FF(1) of the Act against the Commissioner of Taxation or any of his Deputies is hereby confirmed as being extended up to and including 6 March 2021.
   5. The directors pay the plaintiffs' costs of and incidental to the directors' interlocutory application dated 21 April 2022.
3. The plaintiffs filed an outline of submissions on 21 June 2022 and the directors filed their submissions on 12 July 2022. An outline of submissions had already been filed by the directors on 21 April 2022. Those submissions which, at least in part, were over taken by events nonetheless form part of the directors' case. In addition to the three affidavits of the firstnamed plaintiff referred to in the orders of Acting Master Strk, the plaintiffs relied upon an affidavit of James John Davidson sworn 21 June 2022 and an affidavit of Andrew Leigh Moyle sworn 3 August 2022. The directors relied upon the affidavit of Mr O'Shanessy which accompanied the directors' solicitor's letter to the court and which was sworn 21 April 2022.
4. Before dealing with the substantive issues, there are three preliminary matters which require attention. First, as is made plain by the consent orders, the parties approached this matter as a hearing de novo. The plaintiffs concede the directors should have been notified of the original application. They accept it was an oversight on their part and they accept the directors had the right to be heard. Second, pursuant to leave granted by the Acting Master, proceedings were instituted against the Commissioner of Taxation (COR 37 of 2021). The orders sought by the plaintiffs effectively seek to preserve that action. The plaintiffs accept if the extension of time orders are not remade, that action will fall away. The Commissioner of Taxation was advised of the original application and was advised of this application. Apart from seeking copies of relevant documents, the Commissioner has taken no part in the proceedings and does not seek to make any submissions.
5. Third, there is no suggestion that the directors are sued in their capacity as creditors of the company. Rather if payments to the Commissioner of Taxation are set aside as preferences then the Commissioner can recover those amounts from the directors pursuant to s 588FGA(2) of the Act. So any liability of the directors is dependant upon the Commissioner taking action against them. In the normal course, if the Commissioner has determined either that there is no defence to the plaintiff's claim or there is a real prospect the claim will succeed then the directors will be joined to the proceedings. In fact, it is not uncommon for the directors to have conduct of the defence - effectively standing in the shoes of the Commissioner. In this case, it does not appear as though the Commissioner has made a decision as to whether the directors should be joined and an indemnity is sought from them. Be that as it may, it is clear the directors have an interest in being heard in any application for an extension of time.
6. Given the way the directors framed their argument in this case, it is appropriate to begin with a chronology focusing on correspondence passing between the directors' solicitors (Blackwall Legal) and the plaintiffs' solicitors (Lavan). On 3 May 2021, Blackwall Legal sent a letter to Lavan noting that the directors were not aware of the application to extend the time to commence proceedings. On 26 May 2021, Lavan sent a letter to Blackwall Legal responding to the matters raised in Blackwall Legal's letter of 3 May 2021. On 31 May 2021, Blackwall Legal sent a letter to Lavan requesting copies of all open and without prejudice correspondence with the ATO in all court documents and reserving the directors' rights to object to the continuation of COR 37 of 2021. On 2 June 2021, Blackwall Legal sent an email to Lavan confirming that they were content for Lavan to provide a copy of their letter dated 26 May 2021 to the ATO.
7. On 10 June 2021, Lavan sent a letter to Blackwall Legal enclosing copies of all court documents filed in COR 37 of 2021 and all related correspondence with the ATO. On 30 June 2021, Blackwall Legal sent an email to Lavan requesting copies of all court documents filed in COR 77 of 2020. On 12 July 2021, Lavan sent an email to Blackwall Legal attaching copies of all non-confidential documents filed in COR 77 of 2020 and all correspondence received from creditors that oppose the extension application.
8. On 2 February 2022, Blackwall Legal sent a letter to Lavan enclosing draft court papers in respect of a foreshadowed application to have the extension orders set aside. On 7 February 2022, Blackwall Legal sent an email to Lavan confirming that they would not take any substantive steps (in respect of their foreshadowed application) until after the middle of the week beginning 7 February 2022. On 11 February 2022, Lavan sent a letter to Blackwall Legal responding to a matter raised in Blackwall Legal's letter of 2 February 2022 and enclosing copies of further pleadings filed in COR 37 of 2021.
9. On 24 February 2022, Lavan sent an email to Craddock Murray Neumann (Craddock) requesting confirmation of the ATO's consent to Lavan providing copies of correspondence exchanged between Craddock and Lavan to Blackwall Legal. On 28 February 2022, Craddock sent an email to Lavan confirming that the ATO consented to Lavan providing copies of the correspondence exchanged between Craddock and Lavan to Blackwall Legal. On 1 March 2022, Lavan sent an email to Blackwall Legal attaching copies of correspondence exchanged between Craddock and Lavan. On 10 March 2022, Craddock sent an email to Lavan and Blackwall Legal stating that if an application to have the extension orders set aside was filed, the ATO would confirm its position after conferring with the Office of Legal Service Coordination.
10. On 21 April 2022, Blackwall Legal filed their interlocutory application to have the extension orders set aside. On 26 April 2022, Lavan sent an email to Craddock providing notice of the application to have the extension orders set aside and requesting confirmation of the ATO's position on that application. On 9 May 2022, Craddock sent a letter to Lavan and Blackwall Legal confirming that the ATO would not seek to be heard either on the directors' application or at any rehearing.
11. It is now necessary to detail communications between the plaintiffs and the ATO and its solicitors, Craddock in relation to the liquidator's claim. Between 4 May 2020 and 19 May 2020, KPMG and the ATO exchanged email correspondence in relation to KPMG's first letter of demand dated 23 March 2020. On 24 August 2020, the ATO sent a without prejudice letter to KPMG in response to KPMG's first letter of demand. On 3 February 2021, KPMG sent a letter to the ATO responding to the matters raised in the ATO's letter dated 24 August 2020. On 22 February 2021, Andrew Moyle of KPMG had a telephone conversation with Rebecca Smith of the ATO regarding the status of the liquidator's claim.
12. On 24 February 2021, KPMG sent an email to the ATO acknowledging that the ATO had referred the matter to their external legal advisors and were awaiting advice. The letter noted proceedings would have to be commenced before 6 March 2021. On 4 March 2021, originating process to commence action in COR 37 of 2021 was lodged. On 10 March 2021, a notice of appearance was filed by the ATO in COR 37 of 2021. On 12 March 2021, consent orders were made to adjourn the matter to 22 April 2021. On 14 April 2021, Craddock sent a substantive but without prejudice letter to Lavan regarding COR 37 of 2021.
13. The relevant background facts are as follows. Brierty Limited (the Company) was a Perth based engineering and construction company listed on the Australian Stock Exchange. It provided civil construction and mining services to government and private industry in Western Australia and the Northern Territory. The Company was first placed into external administration on 6 September 2017. The plaintiffs were appointed as joint and several voluntary administrators of the Company pursuant to s 436A of the Act.
14. On 7 February 2018, the creditors of the Company resolved it should be placed into liquidation and the plaintiffs were subsequently appointed as the liquidators of the Company. The external administration of the Company has been complex given the size, scope and complexity of the Company's affairs. The large range of investigations and tasks undertaken by the administrators and liquidators is set out in the affidavit material and in the detailed reports that have been provided to the creditors of the Company.
15. A critical component of the investigations into the Company's affairs was the assessment of the date on which the Company became insolvent. Substantial work was carried out by the plaintiffs, both in their capacity as administrators and as liquidators, in relation to assessing when the Company became insolvent. The liquidators eventually formed the view the Company became insolvent on 16 May 2017. That is, it was insolvent on a date three and a half months before the Company was placed into voluntary administration. Given that assessment, the liquidators identified a number of creditors of the Company who received payments in the period between 17 May 2017 and 6 September 2017. It was the liquidator's view these payments constituted unfair preferences within the meaning of s 588FA of the Act.
16. Specifically, the liquidator's identified 21 ordinary creditors of the Company that received payments of a preferential nature in the relevant period. These payments total approximately $8.7 million. Payments to the ATO within the relevant period total approximately $5.57 million. Having undertaken a detailed analysis of the affairs of the Company, the liquidators are satisfied that not only were there unfair preference payments, but that it was in the best interests of the creditors of the Company for these preference payments to be pursued.
17. The liquidators were not in a position to fund any recovery action. They set about obtaining such funding. Eventually funding was obtained from the Attorney General's Department pursuant to the Fair Entitlements Guarantee Recovery Program. Confirmation of funding was received on 20 November 2019. Approval of the funding arrangement was approved by the creditors of the Company on 12 December 2019 but the Funding Agreement was not signed until 24 June 2020. That meant as at the date when application was made for an extension of time, the plaintiffs had approximately one and a half months left until the expiry of the deadline.
18. The reasons why the liquidators applied for an extension of time is set out in paragraphs 55 to 63 of Mr Wood's open affidavit sworn 22 June 2020. In summary, the liquidators believed first it was in the best interest of the creditors of the Company, as well as the defendant creditors, for the parties to have a genuine opportunity to confer and explore whether there was any potential for an agreed resolution on the preference claims. Second, given the number and diverse nature of the claims, there would not have been sufficient time to conduct and complete conferral with all the potential defendants in the remaining time left before the expiry of the deadline for commencing proceedings. Third, the COVID-19 pandemic restrictions meant more time than usual was necessary for negotiations to take place. Finally, the liquidators took the view it was in the best interests of creditors if all the negotiations with all the defendants could be completed before proceedings issued. That would allow recovery proceedings by way of a single 'umbrella' or 'mothership' proceeding. It was the liquidator's position the defendants would not be materially prejudiced by the grant of a six month extension.
19. There was no dispute between the parties as to the relevant legal principles. In Robert Michael Kirman as Liquidator of ACN 142 745 337 (in liq) [2020] WASC 129, I made the following observation:
    1. What is striking about s 588FF(3)(b) is that the power of the court is unqualified. The subsection embodies a discretion and no doubt that discretion is to be exercised judicially. There is nothing in the subsection which indicates in any way what factors are to be taken into account in the exercise of discretion. Nonetheless in various cases principles have been laid down which, while not necessarily binding, provide a guide as to the thinking of various judges. For instance, in Onefone Australia Pty Ltd v One.Tel Limited [2007] NSWSC 69; (2007) 61 ACSR 246 the court determined that an indeterminate extension could not be granted but instead there must be a fixed definite period for making the substantive applications. In Greig v Stramit Corporation Pty Ltd [2003] QCA 298; [2004] 2 Qd R 17 the court determined that although applications are generally made on an ex parte basis notice should be given to persons affected by the application as they have a right to be heard on the application.
20. In Walker and Moloney v CBA Corporate Services (NSW) Pty Limited [2012] FCA 328, Nicholas J described three matters which would usually be considered in deciding whether to grant an extension of time. His Honour said at [43]:
    1. The matters to be considered for the purpose of determining an application under s 588FF(3) are well settled. There are three matters which must usually be considered. First, the court must consider the explanation for the delay in commencing the proposed proceedings within the three year period provided for by the statute. Secondly, it is necessary, subject to what follows, for the court to undertake a preliminary review of the merits of the proposed proceeding. Thirdly, the court must consider any prejudice likely to be suffered in the event the extension sought is granted.
21. It should be noted that the 'preliminary review of the merits' is a consideration of whether the proposed proceeding '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': see Green v Chiswell Furniture Pty Ltd (in liq) [1999] NSWSC 608 per Austin J at [15].
22. On this application, the plaintiffs referred to a number of matters which they said, in addition to the matters canvassed at the original hearing, supported the grant of an extension of time. First, they pointed out the liquidator's application was unusual in that at the time the application was made, the liquidators were capable of commencing all relevant unfair preference claims before the expiry of the standard three year limitation period. They sought a six month extension in recognition of the impact of the COVID-19 pandemic. The purpose of the extension was to give the potential defendants extra time to consider and respond to the claims and give the parties a genuine opportunity to explore a settlement. In relation to the ATO, by letter dated 19 May 2020, the Commissioner advised that as a result of the COVID-19 pandemic, his workforce was in critical demand supporting the Australian community in jobseeker, early release of superannuation and business stimulus enquiries and payments. The difficulties experienced by the Commissioner was illustrated by the fact that the liquidators made their initial demand by letter dated 23 March 2020 but the Commissioner did not provide his response until 24 August 2020. The liquidators then provided further information to the Commissioner on 3 February 2021 and the Commissioner referred the matter to external solicitors. When the originating process (COR 37 of 2022) was filed on 4 March 2021, the liquidators and the Commissioner agreed to adjourn the matter to 20 April 2021 to allow more time for the Commissioner to respond to the liquidator's letter of 3 February 2021. A response was provided on 14 April 2021 and the matter was programmed for the filing of pleadings.
23. It appears to be conceded by the plaintiffs that evidence of events post-dating the extensional orders is a relevant consideration at the rehearing. (There was no direct concession on this point but counsel both in his written and oral submissions did canvas events which had occurred after the extension was granted in support of the proposition the directors had suffered no prejudice.) Counsel submitted there was no delay in the litigation even though a two month adjournment was agreed by the parties prior to a defence being filed. When the defence was filed, all the core elements of a claim were denied. There was no concession in relation to any substantive issue. Discovery has not been completed and mediation has not yet been agreed or ordered.
24. Furthermore, the plaintiffs say there is no prejudice to the directors and point to four matters. First, the directors were provided with the pleadings in COR 37 of 2021 on 10 June 2021 and 11 February 2022. Second, the Commissioner has not yet sought to pursue the directors under s 588FGA of the Act. Thirdly, even if the Commissioner does seek to join the directors as parties to COR 37 of 2021, the directors have had and will have ample opportunity to fully participate in the action. This would include any mediation. Fourth, upon learning of the concerns of the directors in respect of the granting of the extension of time, the liquidators asked for details of any disadvantage or prejudice the directors suffered. Nothing has been identified. While some prejudice may be assumed, it is of such a marginal nature it should not prevent confirmation of the extension orders.
25. In opposing the application, the directors made a number of points. First, they said that what the plaintiffs are seeking is effectively a two year extension to bring proceedings. As I understand this submission, it is based upon the fact that this is a hearing de novo. That means all issues must be considered without reference to the earlier decision. While technically that may be correct, a case such as this does not stand in the same position as an application made for an extension without an earlier application being heard. The failure to give notice to the directors of the original extension application was a relevant factor and it is one to which I will return later in these reasons. But I would not accept the fact that the time limit has now passed as being decisive of the outcome of the application. To adopt that approach would be too technical and not serve the interests of justice.
26. Second, the directors say they have suffered material prejudice. They point to the fact they wrote to the plaintiffs on 12 June 2018 noting the directors' intention to defend any proceedings. They further wrote to the plaintiffs on 4 June 2019 noting the directors had an interest in any unfair preference claim against the Commissioner and therefore must be allowed the opportunity to oppose such a claim. The directors received no response to that letter. Now the directors may be required to defend a claim relating to transactions between the Company and the Commissioner, some of which occurred over six years ago. Section 588FF(3) of the Act intends for that period to be materially more limited. The directors point to the general prejudice which is suffered as a consequence of any delay but are not able to point to any specific prejudice which affects their position.
27. Third, the directors say there is no legitimate explanation for the delay. That joins issue with the plaintiffs' claim that the extension was obtained for the purpose of facilitating the difficulties occasioned by the pandemic.
28. Finally, the directors say there is no real prospect of the action succeeding. They say that for a number of reasons. First, they do not accept the plaintiffs' asserted date of insolvency (16 May 2017). At that time the Company had the continuing support of its major secured creditor, Bankwest. On 21 June 2017, Bankwest agreed to advance a six million dollar facility to the Company. This was done with assistance from the plaintiffs in their then role as investigative accountants for Bankwest. Second, as at 11 May 2017, there was no outstanding PAYG or superannuation liabilities owing to the Commissioner and all obligations to the Commissioner were up to date. From that date until the appointment of administrators, the Company paid all debts to the Commissioner on time or close to on time.
29. Third, the Company was compliant with the payment plan it entered into with the Commissioner in February 2017. Fourth, the Commissioner did not commence any enforcement action against the Company during the relevant time. Fifth, the plaintiffs have not filed any correspondence between the Company and the Commissioner during the relevant time that would give rise to a suspicion of insolvency.
30. Finally, taking all relevant matters into account, the Commissioner has a strong defence that the disputed payments were received in good faith and the Commissioner did not know nor ought he have known the Company was insolvent. That is the case even if insolvency is established in respect of the relevant period.
31. So far as the cause of action is concerned, I am not in a position to reach any concluded view as to the merits of the plaintiffs' claim against the Commissioner. Indeed, it would be improper for me to do so. What can be said is that the plaintiffs have undertaken detailed investigations and have concluded the Company was insolvent as at 17 May 2017. In reaching that conclusion, they have no doubt taken into account that after the insolvency date Bankwest made a further advance to the Company. Once it is accepted that the position of the plaintiffs is arguable, it is possible to say that the plaintiffs on the face of it have a cause of action against the Commissioner. Such a conclusion is all that is required.
32. In the circumstances of this case, I find it very difficult to identify what, if any, prejudice or injustice the directors suffer if the order for an extension of time is extended. There have been no steps taken in the action which in any way adversely affects their position. Indeed, it is by no means clear the Commissioner will seek to join them as parties to the proceedings. The defence lodged by the Commissioner has raised all of the matters that could have been raised by the directors. True it is that time has passed in this matter and that inevitably visits prejudice on those involved in litigation. It is axiomatic litigation should be brought as soon as possible and pursued with dispatch. But some account must be taken of the effects of the pandemic. Clearly it affected the Commissioner's capacity to respond to the plaintiffs' claims. That would not have changed if the directors were made aware of the extension application.
33. In all the circumstances, I am satisfied the extension of time ought be confirmed. On publication of these reasons, the parties should confer as to the form of orders. It was conceded by the plaintiffs that the directors should have been notified of and have been given the opportunity to take part in the extension of time application. This then necessitated this application. In those circumstances, I suggest no order for costs would be appropriate. Any party wishing to make submissions on costs should do so within seven days of the date of these reasons.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.