Green light for Gunns Group liquidators (and liquidators everywhere)

Key takeaways

JWS has achieved an excellent result for the liquidators of the Gunns Group, with success in the Federal Court’s judgment in Bryant (Liquidator) v L.V. Dohnt & Co Pty Ltd, In the Matter of Gunns Limited (In Liq.) (Receivers and Managers Appointed) [2018] FCA 238.

The judgment will be welcomed by all liquidators, as Davies J’s decision provides a useful reference guide for liquidators in establishing insolvency within the context of complex corporate groups and confirms the capacity of liquidators to amend voidable transaction claims outside of the 3-year period specified by s 588FF(3) of the Corporations Act 2001 (Cth) (the Act) in circumstances where the claims were filed within that time period.

The judgment serves as a useful reminder to insolvency practitioners of:

• the wide range of indicia available for establishing a company’s insolvency, particularly in the context of complex corporate groups;
• the value of cogent expert evidence which considers all relevant aspects of an insolvent company’s business, operations, and financial position; and
• the scope for amending voidable transaction claims to claim further payments should an earlier date of insolvency be found, provided that the original claim was filed within the three year time limit stipulated by s 588FF(3) of the Act.

The proceedings

The Gunns Group’s liquidators (for whom JWS acted) commenced proceedings in the Federal Court against various defendants alleging that payments received by them from the Gunns Group were voidable transactions pursuant to s 588FE of the Act. The proceedings raised some common questions, including when the Gunns Group became insolvent and whether subsequent amendments to the claims were statute barred by reason of s 588FF(3) of the Act.

Establishing insolvency

The liquidators relied upon two expert reports in support of their position that Gunns Limited and the Gunns Group were insolvent from 30 March 2012.

Her Honour accepted the expert evidence and found that the Gunns Group was insolvent from 30 March 2012 on the following bases:¹

• Gunns and the Gunns Group had an insurmountable endemic illiquidity and did not have the resources available to meet debts as and when they fell due;
• Gunns had a significant deficiency in cash flow needed to pay debts as and when they became due and payable and even though the banks extended finance, Gunns did not have the capacity to repay those facilities out of its available resources and nor were any other sources of funds realistically available;
• There was no reasonable basis to assume that Gunns’ secured debt could be repaid by 31 December 2012;
• Gunns was trading at a loss and below budget;
• Gunns did not have access to additional borrowings during the relevant period;
• All of the Gunns Group’s finance facilities were fully drawn down as at 30 March 2012;
• There were no undrawn working capital finance facilities available to Gunns to address overdue or unsecured trade creditors during the relevant period and Gunns’ overdraft continually operated in excess of its approved facility limit;
• Efforts to raise additional capital during 2012 were unsuccessful;
• Gunns’ financial position deteriorated from 30 March 2012 with no realistic prospect of improvement after that date.

Amendment of claims

The liquidators’ original claims were made within the 3 year period specified by s 588FF(3) of the Act, particularising that numerous matters (being certain events in the period between January 2012 and 25 September 2012) indicated that Gunns was “insolvent from at least 3 July 2012 and possibly earlier”.

Following the receipt of expert opinion that Gunns was insolvent from 30 March 2012, the liquidators amended their claims to include all payments made to the defendants from 30 March 2012 onwards.

The liquidators argued, primarily relying on Rodgers v Commissioner of Taxation² (“Rodgers”) that the Court was empowered by the Federal Court Rulesto permit the liquidators to amend the pleadings to add the additional payments, as they arose “from the same or substantially the same facts” as those already pleaded.

Her Honour held that given that “the jurisdictional precondition is met by an action for relief under s 588FF(1) commenced within time, the Federal Court Rules are not being used to vary the time stipulated by s 588FF(3) within which a proceeding must be commenced.”³

¹ [2018] FCA 238 at [26]
² (1998) 88 FCR 61
³ [2018] FCA 238 at [61].