Extending the time period for the recovery of preferential payments

Courts are prepared to extend the time period within which a liquidator can commence proceedings to recover a preferential payment from creditors.  The recent decision of the Supreme Court of NSW in Arnautovic v Nichola [2009] NSWSC 233 considered the circumstances where the time for a liquidator to pursue a preference claim may be extended.

Section 588FF(3) of the Corporations Act 2001 (Cth)(CA) requires a liquidator to commence proceedings to recover a preference within three years of the relation back day, or twelve months from the date of the liquidator's appointment - whichever is later.

In Arnautovic, the liquidators were responsible for the liquidation of Australian Coal Technology Pty Ltd (Aust Coal). In the process of investigating Aust Coal's affairs the liquidators identified over 50 potential preference claims, each in excess of $100,000. 

The liquidators commenced proceedings in March 2008 against the 50 preferential creditors they deemed 'worth pursuing'.  During the course of those proceedings an order for the determination of the date of Aust Coal's insolvency was made.

As at 20 February 2009, no determination of Aust Coal's insolvency had been made. As the relation-back day was 3 March 2006 the liquidators brought an application on 20 February 2009 for an extension of time until 3 September 2009 within which to commence proceedings against Multotec Pty Ltd (Multotec) and David Brown Gear Industries Ltd (DBGI), potential preferential creditors who received a preferential payment of less than $100,000.

In granting the extension of time for the liquidators to commence proceedings, Justice Barrett considered the following factors relevant:

  1. the period of the extension sought by the liquidators (6 months) was relatively short;

  2. as the liquidators had limited funds, the liquidators' policy of pursuing the larger (better) claims before the smaller claims was reasonable;

  3. the liquidators notified the defendants of their intention to make a claim prior to the expiration of the section 588FF period, and accordingly, the defendants were aware that the application was likely to be pressed and they could not have believed the possibility of action had evaporated;

  4. the liquidators' application was unlikely to have any detrimental or prejudicial effect on the defendants - aside from the ordinary prejudice of Multotec and DBGI facing the possibility that they may have to pay the moneys claimed; and

  5. the defendants did not oppose the liquidators' application, despite having had an opportunity to do so.

While insolvency practitioners should be mindful of all relevant statutory periods and deadlines, Justice Barrett's decision to extend the time period is an example of the Court exercising its discretionary powers to assist insolvency practitioners to implement practical processes to achieve the best commercial outcome for all creditors.

If you have any queries in relation to this matter or any other insolvency matters, please do not hesitate to contact Alison Robertson on 9288 6872 or Joseph Abberton on 9288 6765.

Disclaimer – the information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.