Liquidators have a limited time in which to bring proceedings in respect of voidable transactions, generally three years from the relation back day (Limitation Period).[1] However, a Court may grant liquidators a longer period to bring a voidable transaction claim provided the liquidator makes an application for this extension within the Limitation Period itself.[2] The flexibility given to the Court is balanced by considering what is fair and just to all parties, not just the interests of creditors or the liquidator.

Recently, in Cohalan & Mitchell Roofing (in liquidation)[3] (Cohalan) the Supreme Court of Victoria refused to grant such an extension. Although the liquidator in Cohalan faced some complications, the judgment is a warning to liquidators to ensure they act promptly to confront any issues and bring any potential claims.

Background

The background to the Court’s judgment is as follows:

• On 20 November 2015, Cohalan & Mitchell Roofing Pty Ltd (Company) was voluntarily wound up and liquidators were appointed (Former Liquidators).
• On 19 April 2017, the Former Liquidators resigned and creditors resolved to appoint a replacement liquidator (Liquidator).
• On 19 November 2018, one day before the end of the Limitation Period, the Liquidator made an application[4] for a 12-month extension for him to bring a potential voidable transaction claim against C & M Roofing Pty Ltd and Cohalan & Mitchell Pty Ltd (Defendants).

Judgments

At first instance, the Liquidator’s application was granted on the basis that when balancing prejudice to the Defendants and the conflicting interests of the creditors, the creditors’ interests were more at risk and that they would suffer greater prejudice if an extension of time was not approved. The Associate Justice also accepted that any delay in bringing the proceedings was not caused by the Liquidator’s conduct. Rather, it was found that the delay had resulted from the unwillingness of the Former Liquidators to assist the Liquidator, and the Liquidator not having funding to promptly pursue the case.

In allowing the Defendants’ appeal, the Supreme Court concluded that:

• In exercising its discretion to grant an extension of time, a Court must consider what is fair and just to all parties having regard to the following three factors:
  • the liquidator’s explanation for the delay in commencing proceedings within the three year period;
  • a preliminary consideration of the merits of the proceeding; and
  • any prejudice which may be suffered by the defendant if the extension is granted.

• In relation to delay:
  • where there is a change of liquidator, the entire limitation period must be considered, not just the period the applicant liquidator was appointed (contrary to some earlier cases). Here, the Former Liquidators had approximately 17 months to commence a proceeding, and the Liquidator had an additional period of approximately 19 months. That delay was too long, unreasonable and not sufficiently explained;
  • the potential claim was a “relatively straightforward case” and an extension would have almost certainly been refused if there were no change of liquidator. The investigations and searches the Liquidator would need to undertake to establish any potential claim could have been done relatively quickly (and well within the period of 19 months available to the Liquidator under the Limitation Period); and
  • the fact the Former Liquidators were unwilling to assist the Liquidator was not a sufficient reason for the substantial delay in bringing the proceedings. This was especially so when the Former Liquidators were not required to provide any assistance to the Liquidator (and were entitled to refuse to provide their administration file), and there was no evidence before the Court that the Liquidator had sought their assistance in any event.

• In relation to merits, the Court accepted that there was a sufficiently strong case that ought to proceed such that this aspect was assessed to be neutral.
  
  
• In relation to prejudice:
  • the proposed claim related to events that took place as far back as 2012. The Court rejected an argument that creditors would suffer greater prejudice if an extension of time were not granted on the basis that it overlooked the significance of “presumptive prejudice” (prejudice from delay in commencing a proceeding) or did not give sufficient weight to the expedition required in a voidable transaction proceeding; and
  • if an extension was granted, there would have been prejudice to the Defendants through the absence of certainty in their affairs with the Liquidator having a further 12 months to decide whether or not to commence proceedings.
    

• Finally, the Court emphasised that it is generally not acceptable or desirable for applications seeking to extend the Limitation Period to be filed on the day before the period expires. In directing that liquidators should approach the Court at the earliest possible time, the Court reminded liquidators to be mindful of limitation periods and to adequately “monitor the pace of investigations and the requirements of any claim”.

Comment

The Cohalan case is a warning to liquidators to be proactive in the liquidation and mindful of relevant limitation periods. It is not uncommon for liquidators to confront difficulties with access to documents and funding, and the Cohalan judgment confirms that those difficulties by themselves will not justify an extension. Where an extension of the Limitation Period is necessary, that application should be brought as far before the expiration of the period as possible to avoid the risk of being locked out of any potential claim.

[1] Section 588FF of the Corporations Act 2001 (Cth) (Act).

[2] Section 588FF(3) of the Act.

[3] In the matter of Cohalan & Mitchell Roofing (in liquidation) (ACN 081 599 528) [2020] VSC 222.

[4] See section 588FF(3) of the Act.