Extending the limitation period to make voidable transactions applications?

Krejci, in the matter of Union Standard International Group Pty Limited (No 8) [2023] FCA 1054
In what circumstances will a court extend the limitation period for liquidators to make voidable transactions applications?

Overview

In this case, a company’s liquidators successfully applied to extend the limitation period to make voidable transactions applications under s 588FF of the Corporations Act. The Court concluded that the liquidators had provided a proper explanation for the delay in seeking to commence proceedings, and that the merits of the claims tended in favour of extending the time. This was so particularly when viewed in the context of the complexity of the company’s affairs and the difficulties the liquidators faced in terms of logistics and obstruction in undertaking their investigations to date.

Background

Peter Krejci and Andrew Cummins, the joint and several Liquidators of Union Standard International Group Pty Ltd, sought an order under s 588FF(3)(b) of the Corporations Act to extend the time for them to make voidable transactions applications under s 588FF(1) of the Corporations Act (the Shelf Order Application).

The company previously held an Australian financial services licence and operated a financial services business under the name “USGFX”. It sold high-risk financial betting products known as contracts for difference and was at one point so successful it even sponsored English football team Sheffield United. 

The Liquidators were appointed as administrators by the company’s directors on 8 July (and subsequently as liquidators by the court on 3 September 2020), after ASIC took regulatory proceedings against the company and certain of its representatives. This meant that the Liquidators were required to commence voidable transactions claims under s 588FF by 8 July 2023. With the exception of one proceeding, the Liquidators had not commenced voidable transactions claims before the expiration of the three-year period. They filed the Shelf Order Application shortly before the deadline.  

The Court’s Decision

Pursuant to s 588FF(3) of the Corporations Act, the Court has power to make a ‘shelf order’ extending the time for making an application under s 588FF(1) of the Corporations Act, so long as the application to extend is brought within the three-year period. The power is discretionary.

In determining whether to make the shelf order, the Court will have regard to, among other factors, the adequacy of the liquidator’s explanation for the delay in commencing proceedings, a preliminary view of the merits of the proposed proceedings and a balancing of the prejudices between the parties. The Court will also consider the disadvantage to potential defendants not identified in a shelf order, as well as the risk of a multiplicity of litigation, inconsistent outcomes and significant time and wasted costs to be incurred. The onus is on the liquidator to show why the extension should be granted.

Considering these factors, Justice Cheeseman concluded that it was appropriate to extend the time to commence the voidable transactions applications. The Liquidators had concluded that up to about three hundred million dollars in investor and trading clients’ funds were not accounted, and had provided a confidential outline to the Court of significant payments to identified categories of recipients that may be recoverable under s 588FF of the Corporations Act if an extension of time were granted.

On the basis of this evidence, a preliminary view of the merits of those potential claims tended in favour of extending the time, particularly when viewed in the context of the complexity of the company’s affairs and the difficulties the Liquidators have faced in terms of logistics but also in facing obstruction in undertaking their investigations to date.

The Liquidators’ explanation for the delay in making the applications was both detailed and adequate in the circumstances. The investigations undertaken by the Liquidators have been substantial and time-consuming. The affairs of the company are complex, with significant overseas connections. The Liquidators have spent considerable time identifying and getting in the assets of the company. They have faced obstruction in their attempts to access the company’s records and unravel the detail of the company’s operations, resulting in repeated applications to the Court.

The claims in respect of which the Liquidators sought to extend the limitation period were only identified after public examinations were conducted. The conduct of the examinations was itself time consuming and also required an application to be made to the Court to enable the Liquidators to fund the examinations using the trust funds. In all of the circumstances, the Liquidators provided a proper explanation for the delay in seeking to commence proceedings.

The length of the extension of time sought (to 8 July 2026) was also justified having regard to the further investigative steps outlined in the confidential evidence and submissions.

In addition, no party who was notified opposed the Shelf Order, and parties who were not notified, and who may at a future point in time be prejudiced, will have liberty to apply to set aside the Shelf Order.

Conclusion

As a result the Court granted the Shelf Order.

Judge: Justice Cheeseman

Counsel for the Plaintiffs: M L Rose

Solicitors for the Plaintiffs: Hall & Wilcox