This probably needs some slight elaboration to the effect that, in performing the task referred to, the respondent is entitled to point to evidence tendered by the applicant as well as that which he has himself adduced: see NSW Sugar Milling Co-operative Ltd v Fowke [2002] NSWCA 229.
28 The third of the matters referred to in para (a) of the Green v Chiswell Furniture formulation should, in my opinion, be approached against the background of these more general principles.
The explanation for delay
29 I turn now to the first consideration referred to in Green v Chiswell Furniture, that is, the reason why it took the plaintiff a year after acquiring the status of liquidator to initiate the present proceedings directed towards resort to s.588FF(1). In doing so, I bear in mind the following passage in the judgment of Austin J in Brown v DML (No. 7):
"It is not necessary, for the purpose of persuading the court to exercise its discretion to grant an extension of time, to show that the particular administration in question has been given absolute priority over every other administration in the hands of the insolvency practitioners in question; nor that the pursuit of unfair preferences was given absolute or very high priority over other tasks in the administration. The court must be careful not to replace the liquidator's judgment on the commercial management of the administration with its own opinion. To the extent, therefore, that delay was explained by reference to the plaintiffs' judgment that it was in the interests of all creditors that attention be paid to the secured creditor, and that there were good commercial reasons for approaching one litigation financier at a time rather than playing them off against one another, and in the absence of anything to show that such judgments were unreasonable, the court should accept the explanation. It may be, as Mr Cuming conceded, that the insolvent administration of these companies could have been completed within 12 months if there were adequate funding and therefore sufficient personnel and resources, but the court should not require that the administration be completed within the quickest possible time, provided that the liquidator's allocation of resources to the administration has been reasonable in all the circumstances."
30 The real issue is thus whether the conduct of the liquidator, as to matters of timing, reflects sound judgment.
31 The plaintiff deposes in his affidavit of 8 November 2002 that, after becoming liquidator in November 2001, he had difficulty in obtaining possession of the books and records of the companies which were "at various locations throughout Sydney". It is not clear to me how the books and records had been scattered in that way, given the clear expectation in ss.438B(1) and 438C that an administrator should have company books and records in his possession. I can only infer that, while the deeds of company arrangement were in force, the predominant expectation was that the deeds would come to a successful conclusion, that creditors' claims would all be resolved according to the terms of the deeds and that the companies would revert to the control of their directors. At all events, the plaintiff has deposed to difficulty in obtaining the books after he became liquidator and says that he did not have them until mid-December 2001. His evidence continues:
"I thereafter had to complete investigations on those books and records. That did not conclude until late April/early May 2002. Those investigations included drafting a section 533 report to the ASIC and reviewing again the voidable transactions. The senior accountant in my office dealing with these liquidations believed, because the time-period under the Corporations Act for the pursuit of unfair preferences (being 3 years from the relation-back date) had expired before my appointment as liquidator, that there was no ability to pursue thereafter unfair preferences.
In July 2002, the manager reviewing the files in preparation for finalisation, queried whether, an extension order could be procured to pursue unfair preferences. Upon concluding on reviewing recent case law that it may be possible for me to pursue potential unfair preferences, I forwarded letters of demand of 20 August 2002 to the defendants, which are exhibited hereto as set out below and awaited responses before determining to bring this application."
32 The plaintiff, when administrator, mentioned the possibility of voidable transactions in his report to creditors dated 30 October 1998. Under the heading "Preferences" in that report, the plaintiff said that he had identified "at least $455,035 of transactions which have the characteristics indicative of unfair preference payment". The transactions in question were then briefly described. Those involving the present defendants were among the transactions referred to in the report. The general issue of voidable transactions was also mentioned in the part of the report dealing with considerations relevant to the decision to approve the proposed deed of company arrangement, rather than having the companies pass immediately into winding up. The report said:
"If the Deed is entered into insolvent trading offences and voidable preferences and uncommercial transactions could not be pursued. I provide herewith estimates of each possible scenario."
33 This statement seems to me to reflect an assumption that, if a deed of company arrangement was entered into, the deed would be implemented according to its terms and the relevant company would, in due course, be returned to the control of its directors freed from creditors' claims. The statement that voidable transactions could not be pursued must be understood in the light of that expected outcome which, while it came to pass in relation to all other companies in the relevant group, did not eventuate in relation to the two with which this application is concerned.
34 The position in this case, as I see it, is that the plaintiff could not, for obvious reasons, have commenced s.588FF(1) proceedings within the period of three years to which s.588FF(3) refers and, upon becoming liquidator, was initially of the genuine belief that the law would not allow the grant of any extension of time to enable him to do so. It was only on reviewing "recent case law" in July 2002 (presumably Brown v DML (No. 6) decided in January 2002 and Aura decided in April 2002) that he saw any point in attempting to pursue the matter. He thereupon acted with reasonable dispatch to make demands upon the several defendants referring to the possibility of an application under s.1322(4)(d) for an order extending time. When those demands were not met, he moved reasonably promptly to file his originating process.
35 In these circumstances, I do not consider that timing factors operate adversely to the plaintiff's s.588FF(3) application. As I observed in Re Green (as liquidator of Australian Resources Ltd), s.588FF is based on an expectation that a liquidator will have a period of three years in which to decide whether to resort to s.588FF(1) proceedings and that the whole of that period will be available to the liquidator in a meaningful way. In Brown v DML (No. 7) at [15] to [17], Austin J considered the circumstances of the several decided cases from which it was clear that in none of them had the full period in fact been available in a meaningful way. That was a factor in the decisions to grant an extension of time. The same factor operates here in favour of extension. While the deeds of company arrangement were in place and expected to resolve creditors' claims, there was no occasion for the liquidator to pay any attention to the possibility of challenging voidable transactions.
Merits of the foreshadowed proceedings
36 I proceed now to the second matter in para (a) of the formulation in Green v Chiswell Furniture, namely, a preliminary review of the merits of the foreshadowed s.588FF(1) proceedings and the question whether they are so devoid of merit that it would be unfair to expose the relevant defendant to the continuing prospect of suit. This inquiry must, of course, be undertaken separately in the light of the circumstances of each case.
37 In relation to the first defendant, Dexion (Australia) Pty Ltd ("Dexion"), the evidence shows that, on or about 23 March 1998, Dexion served a statutory demand on K & T Metal Fabrications Pty Ltd in respect of a debt of some $31,000. By letter to Dexion's solicitors dated 8 May 1998, Global Self Storage Ltd stated that it, not K & T, was liable for that debt and that it expected to be able to "extinguish" it "in the near future" and "trust that your client will bear with us for a shortwhile [sic]". Some two months later, Global Self Storage Ltd made a payment of $88,467.59 to Dexion purportedly to settle all amounts due by "Global Self Storage and associated companies to include K & T Metal Fabrications Pty Ltd". The letter enclosing the payment referred to the difficulty there had been in making it.
38 The plaintiff wrote to Dexion in August 2002 demanding payment of the sum of $88,467.59 and referring to ss.588FA and588FG of the Act. Factors identified as indicative of insolvency were summarised as follows:
"(a) On or about December 1997, a proposed public float of GSS was a failure as the minimum subscription was not achieved and the prospectus was withdrawn. This resulted in all application monies being returned to investors.
(b) A schedule of occupancy rates of facilities as detailed in the prospectus as at 17 September 1997 showed that current occupation of eventual capacity of the group was 36%. GSS' prospectus indicated that 50% of the capacity was required to be developed in order for each facility to become cash flow positive.
(c) As at 31 December 1997, the group had a net asset deficiency of $2,235,176.
(d) As at 31 December 1997, trade creditors were $2,033,750 whilst cash at bank balance was $68,113.
(e) There are debts to the Australian Taxation Office and Office of State Revenue for taxation liabilities in the amounts of $103,230.59 and $121,793.57 respectively.
(f) There is a deficiency to unsecured creditors in the Report As To Affairs ('RATA') in the sum of $5,087,815.
(g) A number of statement of liquidated claims and statutory demands were served on GSS within the six months period prior to my appointment as Administrator. GSS also entered into an instalment agreement to pay a creditor back during this time."
39 The evidence shows some uncertainty or doubt as to the identity of the debtor company. Not only is there the express references to K & T, there is also the fact that the letters are from "Global Self Storage Limited ACN 073 818 998" whereas the company having that ACN involved in these proceedings is described as "Global Self Storage Pty Limited" and the plaintiff's demand for payment of $88,476.59 appears to have been made by him as liquidator of Global Self Storage Consolidated Limited ACN 074 264 949.
40 The second defendant, John Fairfax Publishing Pty Limited ("Fairfax"), carried paid advertising in its publications, apparently for "Global Self Storage Pty Limited ACN 073 818 998". By letter dated 19 February 1998, Fairfax accepted a proposal for payment of $42,963.94 by instalments. In the letter proposing payment by instalments, the chief executive of Global Self Storage Limited referred to a failed attempt to raise equity which left the company "in a parlous financial position", dependent upon shareholders' support "to survive". On 20 July 1998, Fairfax commenced proceedings in the Local Court at Bankstown claiming a debt of $32,168.26 plus interest and costs, making a total of $34,646.75. The plaintiff says that, according to the books, that amount was paid on 12 October 1998. The plaintiff's demand upon Fairfax recited the indicators of insolvency that were mentioned in the letter to Dexion.
41 The third defendant, Mr Spencer, was, at the relevant time, an accountant in sole practice under the name "Spencer & Co" who provided professional services to members of the Global Self Storage group. Indeed, he appears to have been their auditor. By letter dated 20 March 1998 to the chief executive of Global Self Storage Consolidated Limited, Mr Spencer referred to a previously agreed timetable for the payment of $106,000 in fees outstanding and sought to impose firm time requirements on an arrangement for payment by instalments. The chief executive replied on 25 March saying that "the financial position at Global, whilst improving is not 100% where I would like it to be, and will certainly not be there prior to the end of March". He agreed to certain elements of the timetable and said that he would try to meet others "if cash flow allows".
42 There is subsequent correspondence (June 1998) from which it appears that Mr Spencer agreed to accept $52,000 in full settlement of fees and that this sum was paid on that basis with a covering letter which said:
"We do unfortunately live in difficult times and this sort of necessary pruning allows us elbow room to breathe."
43 The plaintiff's letter of demand to Mr Spencer referred to the same indicators of insolvency as were stated in the letter to other defendants.
44 The fourth defendant, Radio 2UE Sydney Pty Limited ("2UE"), wrote to "Global Self Storage" on 20 March 1998 demanding payment of $58,125.00 by 31 March 1998 and stating that, in default, legal action would be taken. A debt collection agency made like demand on 6 April 1998. Proceedings for recovery of that debt plus costs were commenced in the District Court on 17 April 1998. Letters from solicitors for Global Self Storage Pty Limited denied liability but the debt was eventually paid on 17 July 1998. In this case, there is no evidence of letters to 2UE referring to the Global group's financial difficulties. The plaintiff's demand upon 2UE refers to the same indicators of insolvency.
45 In the case of the fifth defendant, Deputy Commissioner of Taxation ("ATO"), there is in evidence a statutory demand served on "Global Self Storage Limited" on or about 7 March 1998 in respect of a debt of $30,020.62. On 13 August 1998, the accountant of Global Self Storage Consolidated Limited wrote to ATO referring to discussions and saying:
"At this time we are unable to pay the total of our indebtedness for group tax deductions which, according to your statement yesterday and including penalties to date, amounts to $149,559.82."
46 There followed a proposed schedule of instalments to clear the balance over six months. This was agreed to by ATO's letter of 14 August 1998. Payments totalling $163,650.46 appear to have been made and it is by reference to these that the plaintiff may proceed under s.588FF(1). The plaintiff's demand upon ATO referred to the indicators of insolvency already noted.
47 Proceedings under s.588FF(1) involve the question whether the transaction in question is of such a nature as to be caught by s.588FE. In each of the cases under consideration, the relevant aspect of s.588FE is that emerging from s.588FE(2) which poses the central question whether the transaction under attack is "an insolvent transaction of the company" and that, in these particular cases, focuses attention on whether the company was insolvent at the time of the transaction. If that question is answered in the affirmative, it becomes necessary to consider the matters in s.588FG - generally, whether the defendant, in becoming party to the challenged transaction, acted in good faith and without reasonable grounds for suspecting the company's insolvency and whether a reasonable person in the defendant's circumstances would have had no such grounds for so suspecting. This, I hasten to say, is intended merely as a general description of the relevant issues sufficient to elaborate the background against which the court must consider the question whether, in a particular case, the liquidator's foreshadowed claim is so devoid of merit that it would be unfair to expose the relevant defendant to the continuing prospect of suit.
48 My assessment is that that question must, in each of the five present cases, be answered favourably to the liquidator. The assertion that each relevant company was insolvent at each relevant time is sufficiently cogent to be responsibly advanced. The circumstances in which each payment was received are such as at least to call into question the ability of the particular creditor to prove the matters contemplated by s.588FG. The plaintiff may have to overcome some obstacles in pursuing his claims. But those claims are not fanciful, ill-conceived or devoid of merit in such a way that the plaintiff should be denied the opportunity to advance them because to do so would entail unfairness to the defendants.
Prejudice to the defendants
49 The final matter to be considered is the general issue of prejudice to each of the several defendants if the period for initiating s.588FF(1) proceedings is extended - or, as it was put in para (a) of the Green v Chiswell Furniture formulation:
"whether the likely actual prejudice resulting from the grant of an extension is sufficiently substantial to outweigh the case for granting an extension."