Beyond the Ashes: Extending the limitation period for voidable transactions

In the recent Federal Court decision of Langdon (Liquidator), in the matter of Phoenix Institute of Australia Pty Ltd (in liq) [2021] FCA 180, the liquidators were successful in their application for extension of time pursuant to section 588FF(3)(b) of the Corporations Act 2001 (Cth) (Corporations Act). 

Background

Scott Langdon and Jennifer Nettleton were appointed as special purpose liquidators (SPLs) to Phoenix Institute of Australia Pty Ltd (in liquidation) (Phoenix), which operated as a vocational education provider.

In March 2016, the directors of Phoenix placed the company into voluntary administration.  In May 2016, Phoenix entered into a Deed of Company Arrangement (DOCA).  The DOCA was terminated in March 2018 and the company was placed into liquidation. The deed administrators were appointed as liquidators.

On 4 June 2020, on the application by the Commonwealth through the Department of Education, the SPLs were appointed to Phoenix.1

The SPLs applied to the Federal Court for extension of time pursuant to section 588FF(3)(b) for additional time to investigate further potential voidable transactions and to form a view as to the merits of the potential recovery action.2

The law

Broadly speaking, on the application of a company’s liquidator, section 588FF(1) of the Corporations Act sets out the orders that a Court may make if it is satisfied that a transaction of a company is voidable by reason of section 588FE.

Section 588FF(3) states that an application under section 588FF(1) may only be made:

  • 3 years after the relation-back day or 12 months after the first appointment of a liquidator, whichever is later; or
  • by application of the liquidator to the Court.

Circumstances for the grant of extension of time

Since appointment, the SPLs had:

  • applied to Court for access to relevant company material which had been obtained by the Commonwealth in related proceedings and subsequently reviewed that material; 
  • reviewed the books and records of Phoenix;
  • undertaken preliminary investigations; and
  • filed an application for the issue of examination summonses and document production.

The Federal Court found that it was fair and just in the circumstances for a section 588FF(3)(b) an order to be made to extend the time in which the SPLs could commence voidable transaction proceedings. 

The Court referred to the following factors:

First, there had been no relevant delay on the part of the SPLs.  The Court found that since their appointment, they had taken steps in an efficient and orderly manner to progress their investigations.3

Second, the SPLs sought to minimise the period of any extension of time by only seeking a short extension of approximately four months to complete their investigations.4

Third, no party appeared to oppose the application. The only potential for prejudice was because of the potential defendants remaining subject to the possibility of legal proceedings.  Any prejudice was minimised given the extension of time sought was relatively short compared to the period of external administration.5

Lavan comment

This case illustrates that the courts will consider the conduct of liquidators to the extent that they caused relevant delay, the period of extension sought and whether any prejudice arises in granting an extension of time.  Importantly, if the liquidators have taken steps in an efficient and orderly manner in conducting their investigations, then the courts will look at such matters favourably. 

01 April 2021
Insolvency Updates
AUTHOR
Joseph Abberton
Partner
AUTHOR
Claire Petersen
Consultant
SERVICES
Recovery, Reconstruction and Insolvency


FOOTNOTES

[1] Commonwealth of Australia (Department of Education, Skills and Employment) v Phoenix Institute of Australia Pty Ltd (in Liq) [2020] FCA 937.

[2] Langdon (Liquidator), in the matter of Phoenix Institute of Australia Pty Ltd (in liq) [2021] FCA 180 [20].

[3] Langdon (Liquidator), in the matter of Phoenix Institute of Australia Pty Ltd (in liq) [2021] FCA 180 [32].

[4] Langdon (Liquidator), in the matter of Phoenix Institute of Australia Pty Ltd (in liq) [2021] FCA 180 [33].

[5] Langdon (Liquidator), in the matter of Phoenix Institute of Australia Pty Ltd (in liq) [2021] FCA 180 [34].