Gunns hit the bullseye: Full Court of the Federal Court agrees that extension orders under s 459R do not require a fixed date

The Full Court of the Federal Court has clarified that the “period” under s 459R(2) of the Corporations Act 2001 (Cth) (Act), within which an application to extend the time for determination of a winding up application must be made, can be fixed by reference to a future event, so long as that event is identifiable at the time that the extension order is made. 

In this article, we provide commentary on the decision in Badenoch Integrated Logging Pty Ltd v Bryant [2024] FCAFC 167 per O’Callaghan, McEvoy and Neskovcin JJ.

After years of protracted litigation regarding unfair preference payments, a further dispute arose between the Liquidators of Gunns Limited (Gunns) and Badenoch Integrated Logging Pty Ltd (Badenoch) relating to the validity of an extension order under s 459R of the Act.

In November 2020, the Liquidators applied to wind up Badenoch in insolvency after it was found liable to repay certain unfair preference payments and failed to pay the relevant judgment debt (Winding Up Proceeding). The Liquidators also applied to wind up Badenoch on the basis that it had not traded for 12 months under s 461(1)(c) of the Act. Orders were made to stay the Winding Up Proceeding while Badenoch appealed the judgment giving rise to the judgment debt. 

By reason of s 459R(1), the Winding Up Application had to be determined within six months of making the application. During the course of the appeals, consent orders were made to extend the time for the determination of the Winding Up Application (Extension Order). The period was “extended to a date to be fixed, such date to be not prior to six months after the determination of the [appeal proceedings]”.

The appeal proceedings proceeded to the High Court of Australia and Badenoch’s liability for the preference payments was confirmed (albeit for a reduced quantum). When the Liquidator agitated to re-list the Winding Up Proceeding because the judgment debt remained unpaid, Badenoch applied for orders that the Winding Up Proceeding had been automatically dismissed by operation of s 459R(3) of the Act because the Extension Order failed to specify a “period”.  Badenoch also argued that the Winding Up Application was an abuse of process or should be permanently stayed for want of prosecution. 

In February 2024, the primary judge dismissed the insolvency limb of the Winding Up Application under s 459R(3), but did not dismiss the alternative application to wind up Badenoch under s 461(1)(c). The Liquidators and Badenoch both appealed to the Full Court.

Issues

The relevant issues before the Full Court included: 

1. whether an order under s 459R(2) extending the period must specify a date or be determined by reference to time;
2. whether section 459R(3) affected the part of the Liquidators’ application which relied on the alternative ground to wind up under s 461(1)(c); 
3. whether the Liquidators’ application under s 461(1)(c) should have been dismissed on the basis that it was inappropriate for a creditor, rather than a member of the company, to apply to wind up a company under that section.

Findings

As to the first issue, the Full Court held that a “period” for the purposes of s 459R(2) of the Act must be one that is definite. A definite period includes one that is specified by a date or reference to time (i.e. a number of weeks) and also an “interval between things during which something happens”. Further, the Full Court held that a “period” within which an application under s 459R(2) may be made is a definite one if it references an event that is identifiable at the time that the extension order is made. The Extension Order was therefore effective to extend the period under s 459R(2) to determine the winding up application because it extended the period to a date to be fixed by the court after the occurrence of the appeal proceedings, which was an event that was certain and identifiable at the time the Extension Order was made.  

As to the second issue, Badenoch submitted that the primary judge erred in finding that the effect of s 459R(3) was not to dismiss the application to wind up on other grounds under s 461(1)(c), because the substance of both grounds was indivisible. The Full Court agreed with the primary judge that the two grounds were distinct: the first being the ground of insolvency under s 459A, and the second being the suspension of Badenoch’s trading for more than 12 months under s 461(1)(c). The primary judge was therefore correct to reject the submission that the Winding Up Proceeding was in substance and form an application to wind up in insolvency and concluded that the alternative ground was not interwoven or indivisible with the insolvency ground.

As to the Liquidators’ standing to make an application under s 461(1)(c), the Full Court rejected Badenoch’s submission that Devmin International Pty Ltd v Belconnen Developments Pty Ltd (2022) 12 QR 170 (Devmin) was authority for the proposition that it is “inappropriate” for creditors, such as the Liquidators, to bring an application under ss 461(1)(c) and 462(2)(b), and creditors should not be permitted to do so. Accordingly, it was open to the primary judge to elect to determine the question of the appropriateness of the Liquidators, as creditors, proceeding with a winding up application under s 461(1)(c) together with a determination on the merits.