Special leave denied on appeal regarding extension orders in winding up proceedings 5 min read
Since our last Insight, the High Court has refused special leave to appeal the validity of an order that extended the statutory six-month period to be wound up in insolvency to 'a date to be fixed'.
The Full Court of the Federal Court's decision stands, meaning that an extension to the period for winding up need not be made with reference to a specified time or measure of time after an event.
Key takeaways
- The Full Court's decision in Badenoch Integrated Logging Pty Ltd v Bryant [2024] FCAFC 167 tells us that, where the conditions stated in section 459R(2) of the Corporations Act 2001 (Cth) (the Act)) are satisfied, a court may extend that 'period'.
- The power to grant such an extension includes the power to do so until the occurrence of an identifiable event.
Background
In 2015, the liquidators of Gunns Limited (the liquidators) commenced a proceeding against Badenoch Integrated Logging Pty Ltd, seeking to recover unfair preference payments (the primary proceeding). The liquidators were successful in the primary proceeding. Badenoch appealed to the Full Court of the Federal Court and was successful, in part, in reducing its judgment debt (the appeal proceeding).
In November 2020, after judgment in the primary proceeding but during the conduct of the appeal proceeding, the liquidators commenced a separate proceeding in the Federal Court, seeking orders that Badenoch be wound up in insolvency (the winding up proceeding).
Given that the winding up proceeding was to be determined within six months (see s459R(1) of the Act) and that the appeal proceeding was still ongoing, the parties agreed consent orders in the following terms:
Pursuant to section 459R(2) of the [Act], the period within which the [Liquidators'] application in [the Winding Up Proceeding] be determined (as required by section 459R(1) of the Act) be extended to a date to be fixed, such date to be not prior to six months after the determination of [the Appeal Proceeding]… (the extension order).
Following the determination of the appeal proceeding and the subsequent landmark High Court decision to abolish the peak indebtedness rule, the liquidators demanded payment of the judgment debt from Badenoch. It did not pay the amount. Instead, Badenoch filed an interlocutory application seeking a declaration that the winding up proceeding had been dismissed automatically under s459R(3) of the Act or, alternatively, an order that the proceeding be dismissed as an abuse of process or for want of prosecution.
The Federal Court decision
At first instance, the Federal Court found in Badenoch's favour. The primary judge concluded that an effective exercise of the power under s459R(2) of the Act required that 'the period' as extended be one that is 'definite, measured by a period of time'; and that it may be fixed by stipulating a date, or may be determined by reference to a number of days or months, but could not be fixed by reference to the occurrence of an event. On this basis, the primary judge found that the extension order was not effective in extending the statutory period for determination of the application to wind up in insolvency as required by s459R(2) of the Act and, as a consequence, the application was taken to have been dismissed by operation of s459R(3) upon expiry of the six-month period.
The Full Court decision
On appeal, the Full Court overturned the primary judge's decision and found that the extension order was effective in extending the period in which the application to wind up Badenoch in insolvency was to be determined. When considering the section of the Act, the Full Court noted that the only prerequisites for the exercise of the court’s discretion are that:
- the court is satisfied that special circumstances justify the extension; and
- the extension order is made within the six-month period, or within the period as last extended.
Noting this, the court's discretion should not be fettered by requiring that an extension under s459R be made to a specified time or measure of time after an event. In this regard, the Full Court found that the extension order was effective because the language of s459R does not suggest that 'the period' means a period 'of time' or one that must be fixed to a specified date or by reference to time. While the Full Court agreed with the primary judge that 'the period' in s459R(2) must be definite, it noted that 'the period' as extended will be definite if it is:
- fixed to a specific date;
- measured by reference to time (ie a number of weeks); or
- an interval that is able to be identified when the extension order is made, such as by reference to an identifiable event.
Given the extension order referred to a date to be fixed by the court after the occurrence of an event that was certain and identifiable at that time (ie the appeal proceeding), the Full Court held that the extension order was effective.
High Court decision
In a very brief disposition, the High Court dismissed the application for special leave, as '[i]t is not in the interests of the administration of justice, either generally or in this case, for special leave to appeal to be granted'.
Separately, Badenoch required an extension of time, as it didn't file its application for special leave to appeal the Full Court's decision on schedule. Interestingly, in a special leave application relating to the grant of extensions of time, the High Court refused to grant Badenoch such an extension, as to do so would be futile, given the court's decision not to grant special leave.
If you wish to discuss the issues raised in this Insight, please do not hesitate to contact one of our experts.