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In case you hadn’t been paying attention…… Time Limits Apply Strictly in Connection with Applications to Wind Up in Insolvency By David McCrostie | April 2008 Area of Expertise | Commercial Disputes & Insolvency

Summary Two recent decisions have highlighted the requirement to act within time limits established in Part 5.4 of the Corporations Act 2001 – one is tardy in connection with those time limits at one’s significant peril!

Who Does This Impact? All parties to proceedings to wind up companies in insolvency - creditor and debtor

What Action Should Be Taken? Comply with time limits at all costs.

High Court On 26 March 2008, in Aussie Vic Plant Hire Pty Ltd v Esanda Finance Corporation Limited [2008] HCA9 by a 4 to 1 majority (Kirby J dissenting) it was held that a court does not have power to extend time for compliance of a statutory demand if the time for compliance with that demand had already been extended pursuant to section 459F(2)(a)(i) and that time had expired.

Background Esanda served a statutory demand upon Aussie Vic. Within time, Aussie Vic applied to the Supreme Court of Victoria for an order setting aside the demand. A Master of the Supreme Court dismissed Aussie Vic’s application. In doing so, the learned Master extended time for compliance with the demand for a period of 14 days pursuant to section 459F(2)(a)(i) of the Act. Within the extended time for compliance with the demand, Aussie Vic gave notice of appeal from the Master’s decision. After the extended time for compliance with the demand had expired and before the appeal had been heard, Aussie Vic applied for an order further extending time for compliance with the statutory demand. The application for further extension of time and the appeal came on for hearing before a single Judge of the Supreme Court of Victoria. Whelan J dismissed both the application for further extension and the appeal itself. In doing so, his Honour held that: The point is not whether an extension of time can or should be granted, the point is that the consequence provided for by section 459F(1) has already attached… and no order which I can or should purport to undo that. Aussie Vic appealed to the Court of Appeal from Justice Whelan’s decision. The Court of Appeal was divided in its opinion but held 3 to 1 that Aussie Vics appeal be dismissed. Aussie Vic was granted special leave to appeal to the High Court.

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In case you hadn’t been paying attention… Time Limits Apply Strictly in Connection with Applications to Wind Up in Insolvency by David McCrostie

The Decision In dismissing Aussie Vic’s appeal, Gleeson CJ, Hayne, Crennan and Kiefel JJ determined: 1. ….unless the contrary intention appears in the Act, the power to extend the period for compliance (section 70 of the Corporations Act 2001) is to be understood as including the power to extend it even if the power has ended…there are several features of part 5.4 of the Act which lead to the conclusion that a contrary intention does appear. In finding that the contrary intention did, in fact, appear in connection with statutory demand cases, the Court said: 2. [T]he evident purposes of Part 5.4 of the Act include speedy resolution of applications to wind up companies in insolvency. One particular feature of the way in which that purpose is carried into effect is to focus principal attention at the hearing of the winding up application upon whether a company is insolvent rather than upon defects in the procedures that precede the institution of the application for winding up. 3. A number of provisions in Part 5.4 highlight the importance of speed in resolution of applications to wind up in insolvency: a. the requirement of section 459R that an application for a company to be wound up for insolvency is to be determined within six months after it is made; b. the absolute limitation in section 459G of the time within which a company may apply for an order setting aside a statutory demand to 21 days after the demand is served; c. the fixing by section 459E(2)(c) of the time for compliance with the statutory demand; and d. the fixing of time under section 459F(2) for compliance with a demand according to whether or not an application is made to set it aside. The Court concluded that: 4. [I]t would be sharply at odds with the purposes revealed by the provisions of Part 5.4 to read the power to extend time for compliance with the statutory demand as capable of exercise after the time has expired. Consequently, the clear statement of the law in Australia is that the general power granted to Courts in section 70 of the Act to extend time, even when that time has expired, was sub-ordinate to the overriding requirement for speed of resolution demanded in Part 5.4 of the Act. The Court rejected Aussie Vic’s submission that an order extending the time for compliance with a statutory demand can be made after the period has expired, holding that the submission can find no textual footing in section 459F(2). In any event, the High Court said that denying the power of a Court to extend time for compliance with the statutory demand after the time has already expired determines no right or liability of the company or of the party that has made the demand.

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In case you hadn’t been paying attention… Time Limits Apply Strictly in Connection with Applications to Wind Up in Insolvency by David McCrostie

Supreme Court of NSW On 4 April 2008, in Amorin Constructions Pty Limited v Kamtech Electrical Services Pty Limited [2008] NSWSC 285, Justice Hammerschlag was asked to determine whether the Uniform Civil Procedure Rules operate to rescue the hearing of a winding up application outside the 6 months within which it is required by section 459R of the Corporations Act 2001 to be determined. His Honour was asked to make an order under Part 36 rule 36.17 (the “slip rule”) amending orders made by Justice Austin on 26 November 2007, when his Honour set the matter down for hearing, to include and order under section 459R of the Corporations Act extending the time within which the winding up application was to be determined. No order extending time was sought from Justice Austin and it was clear that neither the representatives of the parties, nor the judge turned their minds to section 459R issue at that time. In finding that the Rules did not ameliorate the statutory effect of section 459R(3) of the Act, Justice Hammerschlag determined: Had an application for extension been made to Austin J, his Honour would, self-sufficiently, have dealt with it. It may safely be assumed that his Honour would have intended to exercise his discretion. But a finding that he would have had that intention does not permit the Court now to exercise a special discretion his Honour did not and which his Honour was not called upon to exercise. Justice Hammerschlag felt the decision McHugh JA in Story & Keers Pty Limited v Johnstone (1987) 9 NSWLR 446 prohibited the relief sought by the plaintiff under the “slip rule”. Furthermore, his Honour found that even the inherent jurisdiction of the Court to exercise a special discretion to vary orders was not available to the plaintiff. In drawing this conclusion, his Honour said: An outcome that permits the latter to occur under the guise of the slip would, in addition to the difficulties identified above, undermine the clear policy dictates of Part 5.4 of the Act, which require winding up applications to be dealt with promptly. That policy has recently been reaffirmed by the High Court in Aussie Vic Plant Hire Pty Limited v Esanda Finance Corporations Limited…...

Conclusion For those not already on guard that the time limits that apply in connection with winding up insolvent companies apply strictly, the decisions in Aussie VIC Plant Hire and Amorin Constructions make it abundantly clear that present law in Australia is that it is of primary concern to the Courts to ensure that administration of insolvency law in Australia is dealt with promptly and efficiently. This concern is clearly reflected in the refusal of Courts to grant extentions of time to comply with the statutory framework outside the time established by those statutes.

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In case you hadn’t been paying attention‌ Time Limits Apply Strictly in Connection with Applications to Wind Up in Insolvency by David McCrostie

For more information, please contact: David McCrostie Partner T: 02 8257 5711 david.mccrostie@turkslegal.com.au

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In case you hadn’t been paying attention... Time Limits Apply  

Two recent decisions have highlighted the requirement to act within time limits established in Part 5.4 of the Corporations Act 2001 – one i...

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