Tolcher (as Liquidator of Lloyd Scott Enterprises Pty Ltd (In Liq)) v Capital Finance Australia Ltd [2005] FCA 108 (18 February 2005)

Last Updated: 18 February 2005

FEDERAL COURT OF AUSTRALIA

Tolcher (as Liquidator of Lloyd Scott Enterprises Pty Ltd (In Liq)) v Capital Finance Australia Ltd [2005] FCA 108

CORPORATIONS – winding up – voidable transactions – interlocutory application by liquidator – application to extend time under s 588FF(3)(b) made in general form without reference to specific transactions – discretionary considerations – application to join Capital Corporate Finance as a respondent and file an Amended Originating Process.



Corporations Act 2001(Cth) ss 588FC, 588FE and 588FF
Federal Court Rules O 6 r 11(3)

Brown v DML Resources Pty Ltd (No. 2) [2001] NSWSC 590; (2001) 52 NSWLR 685 followed
BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322 followed
New Cap Reinsurance v Reaseguros Alianza SA [2004] NSWSC 787 followed
Greig & Duff v Australian Building Industries Pty Ltd (2004) 2 Qd R 17 considered
McGrath & Ors v HIH Insurance (In Liquidation) [2004] 22 ACLC 449 discussed
Rodgers v Commissioner of Taxation (1998) 88 FCR 61 followed
Star v National Australia Bank [1999] NSWSC 305; (1999) 30 ACSR 583 followed
Rambaldi v Dalbrook Pty Ltd (2003) 21 ACLC 1190 cited
Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 followed
Salido v Nominal Defendant (1993) 32 NSWLR 524 cited
Itek Graphix Pty Ltd v Elliott [2002] NSWCA 104; (2002) 54 NSWLR 207 cited





RAYMOND GEORGE TOLCHER (AS LIQUIDATOR OF LLOYD SCOTT ENTERPRISES PTY LTD (IN LIQUIDATION)) AND LLOYD SCOTT ENTERPRISES PTY LTD (IN LIQUIDATION) v CAPITAL FINANCE AUSTRALIA LTD AND CAPITAL CORPORATE FINANCE LTD

N 979 OF 2004

TAMBERLIN J
SYDNEY
18 FEBRUARY 2005

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 979 OF 2004

BETWEEN:	RAYMOND GEORGE TOLCHER (AS LIQUIDATOR OF LLOYD SCOTT ENTERPRISES PTY LTD (IN LIQUIDATION)) FIRST APPLICANT LLOYD SCOTT ENTERPRISES PTY LTD (IN LIQUIDATION) (ACN 002 739 773) SECOND APPLICANT
AND:	CAPITAL FINANCE AUSTRALIA LTD (ACN 069 663 136) FIRST RESPONDENT CAPITAL CORPORATE FINANCE LTD (ACN 002 888 048) SECOND RESPONDENT
JUDGE:	TAMBERLIN J
DATE OF ORDER:	18 FEBRUARY 2005
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.	The application be granted.
2.	The applicant bring in Short Minutes to give effect to these Reasons for Judgment.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 979 OF 2004

BETWEEN:	RAYMOND GEORGE TOLCHER (AS LIQUIDATOR OF LLOYD SCOTT ENTERPRISES PTY LTD (IN LIQUIDATION)) FIRST APPLICANT LLOYD SCOTT ENTERPRISES PTY LTD (IN LIQUIDATION) (ACN 002 739 773) SECOND APPLICANT
AND:	CAPITAL FINANCE AUSTRALIA LTD (ACN 069 663 136) RESPONDENT CAPITAL CORPORATE FINANCE LTD (ACN 002 888 048) SECOND RESPONDENT

JUDGE:	TAMBERLIN J
DATE:	18 FEBRUARY 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 This is an interlocutory application made by the first applicant as liquidator of Lloyd Scott Enterprises Pty Ltd (in Liquidation) ("the Company").

2 The first order sought is that the period prescribed by s 588FF(3)(b) of the Corporations Act 2001 (Cth) ("the Act") within which an application in respect of a voidable transaction is required to be made, be extended up to 21 January 2005 or such further date as the Court may determine. The second order sought is that Capital Corporate Finance Ltd ("Capital Corporate") be joined as a respondent to the proceedings. The third order sought is that leave be granted to file an Amended Originating Process by way of Statement of Claim by a date to be fixed by the Court naming Capital Corporate as a respondent to the proceedings.

BACKGROUND

3 The Company was, at all material times, a dealer in photo-copiers and related products in New South Wales. A number of leasing transactions were said to have been entered into by the Company with its customers as an undisclosed agent for various financiers including the present respondent ("Capital Finance") and Capital Corporate. These financiers purchased equipment from or through the Company to lease to customers of the Company.

4 In examinations conducted in December 2001 under s 596B of the Act, certain officers of Capital Finance gave evidence in respect of transactions and events in late 2000 and early 2001. As a consequence, the Liquidator formed the view that the preference payments had resulted in Capital Finance receiving more from the Company in respect of its unsecured debts than it would have received if the payments were set aside and Capital Finance was required to lodge a proof for those accounts in the winding up of the Company. The Liquidator formed the view that the preference payments were insolvent transactions of the Company under s 588FC of the Act, which relates to insolvent transactions arising from an unfair preference. The Liquidator considered that the Company was insolvent at the time each of the preference payments were made and that the preference payments were voidable transactions under s 588FE of the Act, with the consequence that, upon an application by the liquidator, the Court might make an order pursuant to s 588FF(1). The power to make orders under that section includes the power to give a direction that a person should pay money to the Company equal to some or all of the money that had been paid under a voidable transaction.

5 On 22 June 2004, the Liquidator filed an application seeking an order directing Capital Finance to pay to the Company an amount equal to the total of a series of specified payments. A further order sought in the application was that the period prescribed by s 588FF(3)(b) of the Act, within which any application in respect of any voidable transaction is to be made, be extended up to and including 20 December 2004. This period has been extended by me pending determination of the present application.

6 On 11 August 2004, the Liquidator filed a Statement of Claim seeking orders against Capital Finance. There is reference in the Statement of Claim to the involvement of Capital Corporate in the transactions, however, the relief sought, on the basis of information available to the Liquidator, is sought against Capital Finance. In the defence filed by Capital Finance on 2 November 2004, it is alleged that certain relevant payments were made to Capital Corporate: see pars 18, 22 and 36 of the Statement of Claim. Capital Corporate was deregistered as from 18 January 2004 pursuant to an application under s 601AA(1) of the Act and at the time of its deregistration it was a subsidiary of Capital Finance within the meaning of that term in ss 9 and 46 of the Act. At the time of its deregistration, Capital Finance held 789,999 of the 790,000 shares issued by Capital Corporate.

7 On 15 November 2004, Messrs Piper Alderman, solicitors for the Liquidator, wrote to Messrs Kemp Strang, solicitors for Capital Finance. The letter indicated that the Liquidator would seek particulars of matters pleaded in the defence in the near future. It expressed the view that allegations made in the defence disclosed a cause of action under s 588FF and related sections of the Act against Capital Corporate and notified the solicitors of the Liquidator’s intention to file an interlocutory application seeking orders including the reinstatement of Capital Corporate under s 601AH of the Act and the consequent joinder of Capital Corporate to the proceeding.

8 The matter was first heard before me on 1 December 2004. The principal argument raised at this stage, which was before I was informed that reinstatement of Capital Corporate had occurred, was to the effect that it would be a breach of natural justice to extend time under s 588FF(3) of the Act in relation to a proceeding against a body which was not then in existence, but in respect of which restoration to the Register was then said to be pending. The proper course, it was submitted, was to await reinstatement and then seek to join Capital Corporate after it had been given an opportunity to make representations as to why it should not be reinstated or joined.

9 I reserved my judgment on this issue.

10 Shortly after that initial hearing, I was notified that Capital Corporate had been restored to the Register and accordingly it was not necessary to determine what I will refer to as the "natural justice" point. However, I have reached the conclusion on the submissions made that there was no substance in the point as argued because upon reinstatement Capital Corporate would have sufficient opportunity to address the issue.

11 The matter came back before me on 3 December 2004 for further hearing. On that occasion, the application for an extension of time and joinder was resisted by Capital Finance on two grounds.

12 The first ground was that under s 588FF(3)(b) of the Act, the Court did not have power to, nor should it as a matter of discretion, grant an extension of time because the application for an extension of time was made in a general form in relation to a class of transaction and therefore lacked sufficient specificity. The second ground was that at the date of the commencement of the proceedings, so far as concerns Capital Corporate, the joinder would fall outside the three year limitation period contemplated by s 588FF(3) and since no proceedings had been commenced within the necessary three year period, any extension of time would be futile.

13 Section 588FF relevantly provides as follows:

"1 Where, on the application of a company’s liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders:

(a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction:

...

(2) Nothing in subsection (1) limits the generality of anything else in it.

(3) An application under subsection (1) may only be made:

(a) within 3 years after the relation-back day; or
(b) within such longer period as the Court orders on an application under this paragraph made by the liquidator within those 3 years.

..."

14 Section 588FF is concerned inter alia with insolvent transactions.

REASONING

15 The application made by the Liquidator on 22 June 2004, which was within the three year period specified in s 588FF(3)(b) of the Act, sought an order that the period prescribed by that sub-paragraph within which "any application in respect of any voidable transaction" is to be made, be extended up to and including 20 December 2004.

16 Section 588FF(1) refers to an order to be made on the application of the Liquidator in circumstances where the Court is satisfied that a transaction is voidable because of the requirements of s 588FE. The application referred to in sub-section 588FF(3)(b) is, in the present case, for an order directing payment of money in circumstances where the Court is so satisfied. There is nothing in the language of s 588FF(3)(b) that expressly requires any application for an extension to specify a particular transaction as opposed to a class or category of transactions.

17 In Brown v DML Resources Pty Ltd (No. 2) [2001] NSWSC 590; (2001) 52 NSWLR 685 at 693, Austin J considered the application of s 588FF(3) in the context of an argument that it did not provide for general orders but provided only for an extension of time to commence an application under subsection (1), which called for the Court to grant specific relief against particular persons in respect of particular transactions. At [32], his Honour considered the authorities and formed the view that while this issue had not been considered in decided cases, in a number of instances orders had been made in general terms.

18 In response to the applicants’ submission in that case that a general order could not be made, his Honour said at [33] and [34]:

"In my opinion the applicant’s submission places an unduly restricted interpretation on s 588FF(3). The statutory language does not literally require the construction that they advance. It is true that subs(1) speaks of a particular application concerning a single transaction, and that the opening words of subs(3) refer to the specific application identified by subs(1). But subs(3)refers to the application under subs(1) only in order to say that such an application must be made within the period of time that subs(3) sets.

... there will be some cases where, notwithstanding the most diligent of efforts, the liquidator is so far short of completing his or her investigations towards the end of the time limit that it is impossible to identify particular transactions in respect of which orders for extension of time could be made."

19 The question was considered by the New South Wales Court of Appeal in BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322 at [175]- [194] and [209] (BP). At [168], Spigelman CJ (with whom Mason P and Handley JA agreed) said:

"In any event, I am of the view that Austin J was correct in the conclusion to which he came that an application under s 588FF(3)(b) seeking a general order for an extension of time to make an application under s 588FF(1) against any creditor, is a valid application and an order in those terms is a valid order. I agree with his Honour’s analysis in the second judgment ..."

20 The "second judgment" referred to by Spigelman CJ is that of Austin J quoted above.

21 The reasoning which underpins the Court of Appeal judgment appears at [170] in these terms:

"The power to extend the time limit for commencing proceedings is intended to provide for the circumstance in which a liquidator is not in a position to commence proceedings within three years of the relation-back day, for whatever reason, subject to the assessment of the Court of all relevant circumstances, including the liquidator’s conduct. It is not difficult to envisage a circumstance in which a liquidator is still ascertaining the identity of the recipients of benefits under possible voidable transactions and cannot give the court an indication of the creditors to be targeted. The power should be broad enough to allow, in those circumstances, for an order granting an extension of time in general terms."

22 The reasoning of the Court of Appeal and that of Austin J was considered and in substance applied by White J of the New South Wales Supreme Court in New Cap Reinsurance v Reaseguros Alianza SA [2004] NSWSC 787 at [14]- [28] (New Cap). At [20], White J expressed the view that he did not consider that an application for an extension of time under s 588FF(3) needed to refer to an identified sub-set of voidable transactions in respect of which extension was sought.

23 In Greig & Duff v Australian Building Industries Pty Ltd (2004) 2 Qd R 17 (Greig & Duff),the Queensland Court of Appeal reached a different conclusion: see [111] and [112].

24 At [111], Jerrard  JA said:

"I agree with the view expressed by Williams JA that s 588FF(3) does not, as a general rule, authorise blanket applications made ex parte and without any identification in the application (or order made) of any person or persons against whom an application may ultimately be made for any one of the variety of orders provided for in s 588FF. ... These are all orders requiring carefully prepared applications, and it seems incongruous that s 588FF(3) should be construed as allowing a (necessarily very specific) ‘application under subsection (1)’ to be made within such extended period as the court orders, on an application brought ex parte in the broadest possible terms."

25 His Honour referred to this as being a general rule. At [112], his Honour referred to the views of Austin J and expressed the view that some circumstances could take the case out of the general rule. Therefore, it is evident that his Honour was directing his attention to the application of the section rather than to the proper interpretation of the section as White J points out.

26 In both the New South Wales Court of Appeal decision in BP and the decision of White J in New Cap Reinsurance referred to above, the attention of the Court was drawn specifically to the reasoning of the Queensland Court of Appeal in Greig & Duff and to the expressions of opinion in that case as to whether an application of a general nature was within s 588FF(3).

27 In McGrath & Ors v HIH Insurance (In Liquidation) [2004] 22 ACLC 449, Barrett J of the New South Wales Supreme Court made an order substantially in the form extending time within which the plaintiffs might make an application under s 588FF(1) of the Act with respect to "any voidable transaction" involving the HIH companies which had not been identified by the Liquidators as at the date of filing the application.

28 In my view, the weight of authority and legal reasoning leads me to conclude that an application in the present case is a valid application and that the Court has the necessary power to grant the extension sought. Apart from authority, the literal wording of the Act and the practical commercial considerations favouring such an application of the provision persuade me that the submissions of the respondent as to the extent of the power under s 588FF(3)(b) should be rejected.

29 The second principal submission for Capital Finance and Capital Corporate is that the Court should not make such an order because it would be futile to join Capital Corporate as the three year limitation period in s 588FF(3) has now expired.

30 In my view, this submission also lacks substance. The effect of an order made pursuant to s 588FF(3) which extends time is that the proceeding may be commenced by making the application under s 588FF(1). The provision is not directed to an amendment of an existing claim but rather with the bringing of a new claim. As the Full Federal Court said in Rodgers v Commissioner of Taxation (1998) 88 FCR 61 at 67-68 after referring to the provisions of O 13 r 2(3) of the Federal Court Rules ("FCR"):

"This provision is to be contrasted with s 588FF(3), which is concerned with the making of an application to the Court; that is, the commencement of the proceeding itself. Section 588FF(3) is not directed to an amendment of an existing claim; at least if that amendment does not involve a new cause of action ... There is no inconsistency between O 13 r 2 and s 588FF(3). One is concerned with making an amendment to a pleading in an existing proceeding; the other is concerned with the commencement of a proceeding."

31 In Star v National Australia Bank [1999] NSWSC 305; (1999) 30 ACSR 583, Rolfe J said at [86]:

"I have come to the view that the legislation and rules under which amendments are permitted in this Court are such that an application to amend a proceeding brought in compliance with s 588FF(3) may be granted, and that it is proper for me to follow the Full Court’s construction of s 588FF(3) to the effect that it is not concerned with that topic, but only with the bringing of an original application. Far from being satisfied that it is wrong, I consider that it is correct and gives full rein the extensive powers of amendment. The amendment provisions clearly have work to do, and they are unfettered by the restraints s 588FF(3) places on the commencement of original applications. There is, accordingly, no inconsistency between s 588FF(3) and the amendment provisions of this Court."

32 These decisions were applied by Hansen J in Rambaldi v Dalbrook Pty Ltd (2003) 21 ACLC 1190 and by White J in New Cap Reinsurance referred to above: see the helpful discussion by White J on this point at [40]-[50].

33 It is evident from the above authorities that the amendment powers operate independently of the power conferred by s 588FF(3)(b) of the Act. Accordingly, it is not appropriate, as Capital Finance seeks to do in the present case, to invoke the provisions of O 6 r 11(3) of the FCR to support the contention that any application for joinder of Capital Corporate would be futile as being outside the three year limitation period.

DISCRETION

34 The relevant principles concerning the granting of an extension of time in the context of the limitation provision, by reference to the interests of justice, were considered by McHugh J in Brisbane South Regional Health Authority v Taylor [1996] HCA 25; (1996) 186 CLR 541 at 554 in these terms:

"In this context, justice includes all the relevant circumstances relating to the application including the various rationales for the enactment of the limitation period involved ... the object of the discretion ... ‘is to leave scope for the judicial or other officer who is investigating the facts and considering the general purpose of the enactment to give effect to his view of the justice of the case’. In determining what the justice of the case requires, the judge is entitled to look at every relevant fact and circumstance that does not travel beyond the scope and purpose of the enactment authorising an extension of the limitation period.

35 The touchstone for the exercise of discretion is what is fair and just. See Salido v Nominal Defendant (1993) 32 NSWLR 524 at 532 per Gleeson CJ and Itek Graphix Pty Ltd v Elliott [2002] NSWCA 104; (2002) 54 NSWLR 207 at [87]- [90].

36 In the present circumstances, having regard to the history and timing of relevant events as set out earlier, the clear purpose of the provision, and in the light of the authorities, I am of the view that as a matter of discretion the extension of time should be granted in this case. The identity of interest between the two companies and the respective roles played by them in the transactions, as indicated by the pleadings and the material before me, together with the fact that the asserted role of Capital Corporate only became finally clear upon filing of the defence in November 2004, reinforce this conclusion.

37 Accordingly, for these reasons I decide in favour of the applicant and direct the applicant bring in Short Minutes to give effect to these reasons. I will hear submissions on the final form of the Orders. I also will hear submissions as to costs in view of the fact that Capital Corporate had been restored to the Register apparently at the time when the first argument was taking place so that if this was the case then that issue became hypothetical before it was argued.

I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Associate:

Dated: 18 February 2005

Counsel for the Applicant:	R Harper SC
Solicitor for the Applicant:	Piper Alderman
Counsel for the Respondent:	M Ashhurst
Solicitor for the Respondent:	Kemp Strang
Date of Hearing:	1 December 2004 and 3 December 2004
Date of Judgment:	18 February 2005