There Is No Voidance In Delay: Liquidator Request For Extension Of Time To Bring Voidable Transaction Proceedings Refused - Insolvency/Bankruptcy

This week's TGIF considers the decision of In the matter of Cohalan & Mitchell Roofing (in liquidation) [2020] VSC 222, where the Supreme Court of Victoria refused to grant an extension of time for filing voidable transaction proceedings.

Background

Cohalan & Mitchell Roofing Pty Ltd (in liquidation) (the Company) conducted a residential roofing business from February 1998 to January 2015. On 20 November 2015, the members of the Company resolved to wind up the Company and David Iannuzzi and Steven Naidenov were appointed as joint and several liquidators (Former Liquidators). The Former Liquidators resigned on 19 April 2017 and the creditors of the Company resolved to appoint Stephen John Michell was appointed as a replacement liquidator (Liquidator).

Decision

Ordinarily, a Liquidator may commence proceedings in respect of voidable transaction within three years from the commencement of the winding up, subject to the Court granting an extension of time under section 588FF(3)(b) of the Corporations Act 2001 (Cth). On 19 November 2018, one day before the expiry of the usual limitation period for the Liquidator to commence proceedings in respect of voidable transaction claims, the Liquidator sought an application for an extension for a period of 12 months to allow him to bring a voidable transaction against C&M Roofing Pty Ltd and Cohalan & Mitchell Pty Ltd (Proposed Defendants).

At first instance, an Associate Justice of the Court granted the Liquidator's extension application on the basis that the interests of the creditors prevailed over the need for the Proposed Defendants to have commercial certainty, to ensure that the creditors of the Company would avoid the prejudice that might be suffered if an extension of time was not granted. The Associate Judge considered that the delay in requesting an extension was not a result of the Liquidator's conduct, but rather was caused by the unwillingness of the Former Liquidators to assist the Liquidator. The Associate Justice also acknowledged the Liquidator's lack of available funding.

Appeal

On appeal, Sifris J of the Supreme Court of Victoria observed that an application for an extension of time to commence proceedings in respect of alleged voidable transactions conferred a discretion on the Court to allow an extension of time to the usual period, where appropriate. His Honour observed that such an application should be determined on the basis of what is fair and just to all parties involved, having regard to the following factors:

a liquidator's explanation for the delay to commence proceedings within the three year period;
a preliminary view of the merits of the proceeding; and
any prejudice which may be suffered by the Liquidator if the extension is not granted.

In allowing the appeal, and denying the Liquidator's ability to extent the time to bring his claims, the Court considered those factors in turn.

Delay

The Court indicated that in circumstances where there is a change of liquidator, the entire limitation period needs to be taken into consideration, not just the period from when the replacement liquidator is appointed. In this case, the Former Liquidators had approximately 17 months to commence proceedings, and the Liquidator had about 19 months to commence proceedings.

Accordingly, the Court's view was that the delay was too long, unreasonable and not sufficiently explained because the unwillingness of the Former Liquidators to assist did not provide an adequate reason for the period of delay because, for example, the Court observed that was also no evidence of any request by the Liquidator to the Former Liquidators for assistance or information.

Further, the investigations and searches required to be undertaken by the Liquidator to determine whether a claim should be brought were relatively simple and able to be carried out efficiently in circumstances where the available evidence indicated that the liquidation was relatively straightforward and the preliminary work necessary to understand whether a claim might be brought should have been completed within the 19 month period following the Liquidator's appointment.

The application for an extension was filed at the very last minute, that is a day before the expiry of the usual three year period within which to commence a claim.

Merit

The Court found this factor to be neutral.

Prejudice

As to prejudice, the Court weighed the presumptive prejudice to creditors in the Liquidator's inability to commence proceedings against the lack of certainty from the perspective of the Proposed Defendants. Considered in the context of the Liquidator's delay, the presumed prejudice to creditors did not outweigh the impact of the delay by the Liquidator or Former Liquidators even in circumstances where they did not obtain funding to pursue the claims because as a general rule unnecessary and unexplained delays were not in the interests of justice.

Comment

This decision highlights the importance for liquidators to act promptly when applying for an extension of time to commence proceedings in respect of voidable transactions where such claims are available. Where an extension is necessary, the application should be sought as soon as possible before the expiration of the usual limitation period, and the Court should be informed of the work that has been performed within the period leading up to the application for an extension.

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