Ashurst Restructuring Roundup

Extending time to bring unidentified preference claims against unidentified defendants: "Shelf Orders"

Nipps, in the matter of i-Prosperity Ltd [2023] FCA 1446 ("Nipps").

Bester, in the matter of Mirror Trading (Pty) Ltd (in liquidation) [2024] FCA 305 ("Mirror Trading").

Banerjee, in the matter of City Steel Pty Ltd (in liq) [2024] FCA 481 ("City Steel")

Giasoumi and Deane, in the matter of SLKALT Pty Ltd (in liq) [2024] FCA 403 ("SLKALT")

Section 588FF(3), Corporations Act 2001 (CA) limits the time within which proceedings may be brought to recover the benefit of antecedent transactions:

(a) to three years after the relation-back day; or

(b) 12 months after the appointment of the liquidator,

whichever is the later.  

That limitation period may be extended by the court on an application brought within that time period: s 588FF(3)(b), CA; see Cussen, in the matter of Monarch Tower Pty Ltd (in liq) v Sinoace Holdings Ltd [2024] FCA 716.  

The applicable principles by reference to which the court will exercise its discretion to extend the time within which recovery proceedings may be brought were summarised in Cussen, in the matter of Monarch Tower Pty Ltd (in liquidation) [2023] FCA 192 at [16] as follows:

"The power to make a shelf order is a discretionary one. In exercising the discretion, the court should consider the following factors:

(a) the adequacy of the liquidator's explanation for the delay in commencing proceedings; 

(b) a preliminary view of the merits of the proposed proceedings; and

(c) a balancing of the case for granting the extension against any actual prejudice to the respondents that is likely to arise from granting the extension."

See also Re Cohalan & Mitchell Roofing (in liq) [2020] VSC 222 at [30]-[33], City Steel at [8]. and SLKALT at [39]. 

The High Court has held that that power may be exercised in respect of transactions that cannot be identified at the time of the order; Fortress Credit Corporation (Australia) 11 Pty Ltd v Fletcher [2015] HCA 10.  

In i-Prosperity the court was asked for an order extending the time to commence claims to recover the benefit of various identified antecedent transactions as well as a shelf order being for an extension of time to recover "any payment made to facilitate" a particular transaction including but not limited to certain transactions which were identified. The court declined to make the shelf order for the reasons that:

(a) the liquidators "have identified a large number of potential claims [and] it is unlikely that [they] have, in the course of all of the work over the past three years, simply failed to notice a significant potential claim" (at [75]); and

(b) other than those prospective defendants who had been notified of potential claims, the shelf order would permit claims to be made against persons who have no notice of that possibility and, in their case, "the objective of certainty in commercial affairs is more powerful in respect of this group of potential defendants…. they know nothing of any potential that claims may be advanced beyond the default three-year time frame".(at [76])  

That actual prejudice to the prospective but unidentified respondents outweighed the case for granting the shelf order.  

In City Steel, it was held that a shelf order would not be extended to cover two individuals that were subsequently identified as the liquidators "were unable to point to any evidence of potential voidable transaction claims against [them]" (at [15]).   

Against those decisions, in Mirror Trading, the court was prepared to make a shelf order in respect of unidentified claims against unidentified persons.  The circumstances in which it did so involved a company which "operated an illegal Ponzi-type scheme whereby members of the public invested in a bitcoin venture promising high returns" but with "returns to early investors funded by later investment monies".  The liquidators had identified "over 300,000 investors across 234 countries, including 866 Australian participants in the scheme, who have received a return of bitcoin from" the company.  In the case of the Australian recipients they were said to be the "winners" of the scheme and are potential defendants to future claims that the company or its liquidators may be able to bring because of the shelf order which was proposed.  

The court was prepared to exercise its discretion to grant a shelf order which was unlimited both so far as the identity of the persons against whom proceedings could be brought as well the relief which could be claimed in those proceedings because, in summary, it was satisfied that:

(a) the liquidators had not had sufficient time to investigate the claims which could be made against Australian recipients of payments out of the scheme, but potential claims existed against those persons; 

(b) the size and complexity of the liquidation satisfactorily explained the delay in instituting proceedings; 

(c) because the operation of the scheme involved a fraud against its victims, there was a public interest in extending the time within which claims could be investigated; and

(d) as the claims were likely to be brought against "winners" rather than creditors or other commercial arm's length parties, considerations of prejudice in the nature of delay were accordingly not as important as they might otherwise be. 

Whist the potential for claims was identified because it was known that Australian recipients received bitcoin, the individual circumstances of the acquisitions, whether the parties can be located and served, and the prospects of recovery, were not known. Therefore the court accepted there was no natural justice requirement for the liquidators to serve any potential defendant since none had been identified. However, the Court made an order allowing for any future defendant to seek to vary or discharge the shelf order. 

Author: Richard Fisher AM, Consultant.