Voidable transactions: act within the statutory time limit

Written by Joseph Scarcella (Partner), Pravin Aathreya (Partner) and Edwin Fah (Special Counsel)

Commissioner of Taxation v Iannuzzi (No 3) [2024] FCA 45
 

Key takeaways

Within the statutory three-year limitation period for the recovery of voidable transactions, liquidators must either:

1. commence recovery proceedings; or
2. apply to have that time period extended.

This requirement will be applied strictly. Failure to do either of the above will preclude any action for the recovery of voidable transactions.

An “end run” around these time limitations will not be permitted. That is, the law does not permit a liquidator to circumvent the limitation period by alternative means.

Background

In 2014, liquidators (Liquidators) were appointed to a number of companies (Companies) which were deregistered in 2015 and 2016.

At about this same time, an intergovernmental taskforce (the Phoenix Taskforce) was established (Taskforce) involving the Australian Taxation Office, the Australian Securities and Investments Commission, as well as other governmental agencies. The purpose of the Taskforce was to detect, deter and disrupt certain undesirable conduct, including tax evasion, phoenixing activity and money laundering.

The Liquidators came to the attention of the Taskforce, and in 2017, the Commissioner of Taxation (Commissioner) commenced proceedings seeking, pursuant to ss 90-10 and 90-15 of the Insolvency Practice Schedule (Corporations) or alternatively, (the now repealed) s 536(1) of the Corporations Act 2001 (Cth) (Act):

1. an inquiry into the Liquidators’ winding up of the Companies;
2. that the Liquidators cease to be the liquidators of the Companies and be replaced with new liquidators; and
3. that the Liquidators be removed from the register of liquidators maintained pursuant to the Act, and be restrained for 10 years from applying for re-registration.

The Liquidators resisted the Commissioner’s proceedings, but on 2 September 2019, consented to the following orders (which were made by the court):

1. reinstating the Companies’ registrations;
2. replacing the Liquidators with Ms Gayle Dickerson and Mr Stephen Vaughan (New Liquidators);
3. that pursuant to s 601AH(3)(d) of the Act, for the purposes of calculating limitations periods, the time between when the Companies were deregistered and the date of these orders, be disregarded (Limitations Order); and
4. that any parties pursued by the New Liquidators in reliance on the Limitations Order, be given liberty to apply to vary or discharge the Limitations Order.

In 2021, and in reliance on the Limitations Order, the New Liquidators commenced legal proceedings against various third parties (Applicants) alleging they were parties to voidable transactions pursuant to s 588FE of the Act.

Shortly thereafter, the Applicants filed an application seeking to have the Limitations Order set aside.

Relevant legislation

Relevantly:

1. s 588FF(3) of the Act provides that any proceedings asserting voidable transactions commenced by the New Liquidators must be commenced within three years after the relevant relation-back date, unless the court orders a longer date upon an application made within that three-year period; and
2. s 601AH(3)(d) of the Act provides that upon the reinstatement of a company, the court is empowered to make any other order it considers appropriate. (Emphasis added.)

Issues

The Applicants contended that the effect of the Limitations Order was to extend the time period in which the New Liquidators could commence proceedings for clawback of voidable transactions against them, and that the only way this extension could be achieved was by an application made pursuant to s 588FF(3) within three years of the relation-back date.

Given that the Limitations Order was made pursuant to s 601AH(3)(d) and not pursuant to s 588FF(3), and that it was not made within three years from the relation-back dates for each of the Companies, the Applicants contended that the court did not have the power to make the Limitations Order.

Accordingly, absent the Limitations Order, the New Liquidators could not maintain their actions against the Applicants for clawback of voidable transactions.

Findings

The court agreed with the Applicants, finding that the court did not have the power to make the Limitations Order because:

1. consistently with previous High Court of Australia authority, s 588FF(3) was intended to “cover the field” in relation to extensions of time to bring voidable transaction claims;
2. section 601AH(3)(d) is a provision of general application and cannot override the explicit specific power in s588FF(3);
3. the s 588FF statutory scheme for voidable transactions is “self-contained”, and reflects a considered balance between the interests of companies and putative defendants; and
4. s 536(1) is concerned with supervising the conduct of liquidators. It does not provide for an alternative source of power to extend time limitations for the commencement of voidable transaction claims.

Conclusion: act within the statutory time limit

This decision is a blunt reminder that the statutory limitation period in s 588FF(3) needs to be adhered to strictly, and in the absence of a “shelf order” obtained under s 588FF(3)(b), cannot be extended after it has expired. Other general Corporations Act provisions (such as s 601AH(3)(d)) are unavailable to assist a liquidator who fails to meet this strict time limit.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).