Section 588FF of the Corporations Act 2001 (Cth) (Act) allows a court to set aside voidable transactions within a certain period (being the later of three years after the “relation-back day” or 12 months after the appointment of a liquidator), upon the application of a liquidator. The court is conferred with a discretion to extend that period (section 588FF(3)(b) of the Act).
In the recent case of Williams (as liquidator of Willahra Pty Ltd (in liq) v Kim Management Pty Ltd  QSC 143 (Williams)), the Queensland Supreme Court delineated the scope of the discretion conferred under section 588FF(3)(b) of the Act.
Willahra Pty Ltd (Willahra) was constructing an upmarket apartment building in central Brisbane. It entered into several contracts for sale with Kim Management Pty Ltd (Kim). It transpired that Kim was unable to complete the purchase, despite the fact that they had recently completed a valuable transaction with a related party. Willahra went into receivership and then liquidation. The liquidator sought to challenge the other transaction as an unfair preference.
Because of continued disagreements with the receivers, the liquidator was unable to challenge the impugned transaction within the relevant time period. Orders were obtained granting an extension of time under section 588FF(3)(b) to bring applications against a blanket class of potential defendants (Shelf Order). Kim was one such defendant. Because the application was brought ex parte, Kim challenged the orders on the grounds that:
Kim alleged that the Shelf Order was made in a manner inconsistent with their right to address the case before them and therefore, amounted to a denial of natural justice. Accordingly, it argued that the Court could set it aside by virtue of its inherent jurisdiction or section 667 of the Act.
The seminal questions to be addressed by the Court were:
Justice Dalton, in setting aside the Shelf Order, held that in all ex parte applications there is an overriding duty of candour, which in this case should have been exercised by the liquidator. It was held that:
The Court found that the liquidator should have identified Kim as a potential defendant and made full disclosure of the ambiguity surrounding the impugned transaction, which the liquidator did not do.
Lavan Legal comment
Section 588FF(3)(b) of the Act provides a very useful mechanism to liquidators, but it is essential that its limits are understood. In the event that an application is to be made ex parte: