Gunns Limited - Case Update

Daniel Bryant and Craig Crosbie of PwC, the liquidators of Gunns Limited, have successfully appealed an order dismissing their application to wind up Badenoch Integrated Logging Pty Ltd in insolvency pursuant to Pt 5.4 of the Corporations Act 2001 (Cth).

Gunns operated as a major forestry enterprise located in Tasmania. The liquidators were appointed administrators of Gunns in 2012 and later liquidators in 2013. In 2015, they commenced a proceeding against Badenoch seeking to recover approximately $3.4 million in alleged unfair preference payments received by Badenoch in 2012. In May 2020, the Federal Court delivered judgment against Badenoch and in July 2020, final orders were made that Badenoch pay the liquidators $2,072,832.04 in unfair preferences plus pre-judgment interest of $505,848.21.

Badenoch appealed to the Full Court. After the appeal was commenced but before it was heard, in November 2020, the liquidators commenced a further proceeding seeking an order that Badenoch be wound up in insolvency pursuant to s 459A. In December 2020, Badenoch filed an interlocutory application seeking to adjourn the winding up proceeding pending the determination of the appeal. Shortly thereafter, orders by consent were made that the winding up proceeding be adjourned to a date to be fixed, not prior to the hearing and determination of appeal.

In February 2021, the Full Court heard the appeal and reserved its decision. In April 2021, further orders were made by consent extending the period within which the winding up application was to be determined. The order stated that the extension was “to a date to be fixed, such date to be not prior to 6 months after the determination” of the appeal.

In May 2021, the Full Court delivered its judgment allowing Badenoch’s appeal in part, and in June 2021, final orders were made by the Full Court which reduced the judgment debt to $1,200,633.68 and pre-judgment interest to $314,062.90. In July 2021, the liquidators applied for special leave to the High Court. In March 2022, the High Court granted special leave to appeal. In February 2023, the High Court delivered judgment dismissing both appeals. On 15 February 2023, the liquidators demanded payment within seven days of $1,724,736.12, being the judgment debt plus post-judgment interest, and advised that they intended to take steps to re-list the winding up proceeding should Badenoch fail to pay.

Badenoch did not meet the demand and took the position that the winding up application had been dismissed by operation of s 459R(3) of the Act, which provides that a winding up application must be determined within 6 months after it is made, unless the court extends the period and the winding up order is made within that period.

On 5 September 2023, Badenoch filed an interlocutory application seeking a declaration that the winding up proceeding had been dismissed automatically pursuant to s 459R(3) or, alternatively, as an abuse of process or for want of prosecution. The primary judge granted the application to dismiss on the first ground — on the basis that the winding up application had been dismissed by operation of s 459R(3) — but rejected the alternative ground. Both Badenoch and the liquidators sought leave to appeal.

The Full Court granted leave to appeal to both parties and ultimately allowed the liquidators’ appeal and dismissed Badenoch’s cross-appeal. One of the key issues was whether the extension order needed to specify a definite period within which the application to wind up must be determined, or whether it was sufficient that the period be fixed by reference to the occurrence of a future event (i.e., to a date not prior to 6 months after the determination).

The Full Court had regard to the relevant authorities and concluded that the hearing before the primary judge may have been the first occasion where a court has been asked to determine the meaning of “the period” in s 459R(2). As a result, the Court looked to the language of s 459R, the Harmer Report and Explanatory Memorandum, as well as the dictionary definition of the word “period” to reach its conclusion. The Court found that the language of s 459R does not suggest that “the period” means a period “of time” or which must be fixed to a specified date or by reference to time. The Macquarie Dictionary defines “period” as “n. 1. An indefinite portion of time, or of history, life, etc, characterised by certain features or conditions 2. any specified division or portion of time.” A “period” can mean a length of time, but it can also mean an interval between things during which something happens.

Although the point is not specifically addressed in the Harmer Report, there is nothing in that report or the Explanatory Memorandum that suggests “the period” must be a date or measured by time. The Court agreed with the primary judge that “the period” in 459R(2) as extended must be one that is definite. However, in the Court’s view, “the period” as extended is definite if it is fixed to a specific date, if it is measured by reference to time (i.e., a number of weeks), or if it is an interval that is able to be identified when the extension order is made, such as by reference to an identifiable event (as was the case here).

The decision can be found here.

Professionals involved:

• Counsel for the liquidators: Ben Gibson and Matthew Tennant

• Solicitor for the liquidators: Johnson Winter Slattery

• Counsel for Badenoch: Michael Gronow KC and Reegan Morison

• Solicitor for Badenoch: Scanlan Carroll Lawyers