Liquidator fails to convince court to extend timeline to bring proceedings

A recent decision of the Queensland Supreme Court in Baskerville v Baskerville & Ors [2021] QSC 292 has clarified the exercise of judicial discretion to extend the limitation period for voidable transaction proceedings and examined the limitations of ‘without prejudice’ privilege.


A liquidator was seeking an extension of time to commence proceedings pursuant to section 588FF(3)(b) of the Corporations Act 2001 (the Act). The relevant company went into liquidation on 11 July 2018 and two liquidators were appointed. By 23 April 2020, both these liquidators had resigned and were replaced with a new liquidator (the Applicant). The time limit for commencing voidable transaction proceeding was to expire on 11 July 2021. The application to extend was filed two days before that limitation period expired.

There are no criteria within the Act for considering an extension, and thus the court had to decide whether it was just and fair to extend the limitation period. The onus was on the Applicant to show why the time limitation should not apply.

‘Without privilege’ correspondence

An important preliminary issue in this decision was whether to admit email correspondence that occurred on 31 May 2021 between the solicitor for the applicant and the second respondent that had been marked ‘without prejudice’. The exchange concerned a section 530B notice that the second respondent failed to comply with. The solicitor for the applicant ended an email by stating that if he provides the necessary information then they can look at avoiding litigation but that otherwise they have a barrister briefed and a claim should be ready to file against them well before 30 June 2021.

The classic rule of without prejudice comes from Field v Commissioner for Railways (NSW).[1] The rule states that negotiations to settle litigation should be excluded from evidence to allow parties to freely communicate without the pressure of the liabilities the correspondence could impose on them. However, there are exceptions to this rule.

The relevant exception for this case was a rule from Pitts v Adney,[2] which stated that the without privilege rule cannot be permitted to put a party into the position of being able to cause a court to be deceived as to the facts, by shutting out evidence which would rebut inferences upon which that party seeks to rely.

A critical part of the applicant’s case was that the applicant was not in a position to proceed. However, the email clearly stated that they were ready to file a claim before 30 June 2021. Therefore, the emails were held to be admissible.

Was it just and fair to extend the limitation period?

For the court to exercise its discretion to extend the limitation period, the Applicant had to show valid reasons for the delay and that the actual prejudice caused does not outweigh the case for granting an extension.

The Court looked at affidavits relied upon by the Applicant to identify relevant matters regarding the Respondents. The Applicant pointed to the fact that the liquidation was unfunded and that he had not been able to identify a reason for a nearly six-million-dollar transaction, meaning there could be an unreasonable director transaction claim.

The Respondent submitted that there had already been correspondence from the Second Respondent and that he had no further documents to provide. It was also argued that the Applicant’s case was vague in its details for what would be done in the intervening period.

The Court accepted the respondents’ submissions and specifically pointed to the periods between February 2019 - April 2020 and April 2020 – March 2021 where little work was done and there was no satisfactory explanation as to why that was so.  The Court also held that the fact that the liquidation was unfunded was of little importance as section 588FF(3)(b) does not distinguish between funded and unfunded liquidations. Finally, the Applicant’s submission that they had sufficient material to commence proceedings prior to 30 June 2021 was a contradiction in the applicant’s position of not being ready to bring proceedings.

Therefore, the Court found that that the Applicant had not provided a satisfactory explanation for the delay and it was not fair and just in all the circumstances for the limitation period to be extended.

Lesson to be learned

Liquidators looking to pursue claims under Part 5.7B of the Corporations Act ought to heed the case law that makes it very difficult to convince a Court to extend the limitation period (often 3 years), even if the liquidation is unfunded.


[1] (1959) 99 CLR 285.

[2] [1961] NSWR 535.

Court dismisses application to terminate the winding up of a company

In the decision of Re Gulf Aboriginal Development Company Ltd [2021] QSC 310, the Queensland Supreme Court (Freeburn J) dismissed an application to terminate a winding up order after concerns were raised about the viability of the company. This case helps to understand the Court’s limits when exercising the discretion to revive a company.


In February 1997, Century Mining Ltd (Century) entered an agreement with the State of Queensland and four different Native Title groups. Under this agreement, Century was required to make payments for the benefit of the Native Title groups in certain proportions.

The agreement contemplated that Gulf Aboriginal Development Company Limited (Gulf) would receive and distribute these payments on behalf of the Native Title groups. Gulf received administration fees from Century and also played a lobbying role, representing any cultural or environmental concerns of the Native Title groups.

The evidence before the Court was that in the years prior to liquidation, Gulf had poor management practices and failed to represent the Native Title groups in a meaningful way. They began to incur considerable losses from 2013 and their income almost exclusively came from Century.

The Court raised significant concerns with how Gulf operated. Gulf’s status as a charity was revoked in 2016 (backdated to 2013) following a review of their governance practices by the Australian Charities and Not-for-Profits Commission. The Court also outlined how Gulf’s directors spent large sums of money on things like flights and accommodation, but without a clear benefit to members. They also did not keep records of all transactions, as required to do so.

As a result of this mismanagement, the Native Title groups who were parties to the agreement resolved that they do not wish to be represented by Gulf and that Gulf should no longer be receiving payments on their behalf.

By the time a liquidation order was made on 28 November 2019, Gulf had amassed debts of over $600,000, as well as a debt owed to the Australian Taxation Office of $44,590.

Gulf in liquidation

Once Gulf was placed in liquidation, there was only $40,133 in assets, which was entirely consumed by the liquidator’s remuneration and expenses as well as legal fees and the petitioning of the creditor’s costs.

The creditors resolved to enter a deed of company arrangement (DOCA). This DOCA split the creditors into two classes. The first class of creditors were the ordinary creditors who were entitled to receive a dividend in the ordinary way and in accordance with priorities, as would be the case in a winding up, and their debts would be discharged once a dividend was received. On the Court’s calculation, the payment to ordinary creditors totalled $93,000 and represented a payment to each ordinary creditor of approximately 28.62 cents in the dollar.

The second group were the subordinated creditors who were entitled to subsequently recover their deferred debts and remained entitled to 100 cents in the dollar under the DOCA. The subordinated creditors subsequently executed a deed poll agreeing to reduce their debts to 20% of their admitted amounts, to operate in the event that the Court made an order terminating the winding up. This would equal $60,000.

Should the winding up order be terminated?

The liquidator brought an application asking the Court to terminate the winding up order under section 482(1) of the Corporations Act 2001 (Cth).

In such an application, the onus is on the applicant to make out a positive case that favours the terminating of the wind-up order. The application was made in circumstances where:

  • the Native Title groups were against the application and had made other arrangements to receive payment from Century directly;
  • allegations of fund mismanagement by directors had not been properly investigated; and
  • there was no independent report about the solvency of the business.

The evidence also was that:

  • Gulf would have little income other than an uncertain entitlement to the Century administration payments as Century was proposing to continue paying these to the Native Title groups directly; and
  • the company would also be indebted to creditors for $60,000 with assets of only $35,000, meaning Gulf would automatically be insolvent if winding up was terminated.

The liquidator had provided evidence that the former management of Gulf had been removed and that they would start again under new management. The Court held that this was a neutral factor but that the absence of an independent business plan meant that Gulf’s revival would lead to considerable uncertainty.

On weighing up the factors, the Court held that the winding up should not be terminated.

This case illustrates some of the factors that will be taken into consideration when deciding whether to terminate a winding up order and that courts will be hesitant to revive companies that will be insolvent after revival.


Measures for electronic execution of documents extended into 2022

Due to continual work from home arrangements and difficulties posed by travel restrictions, both federal and state governments are extending temporary laws to allow documents to be signed electronically. However, the permanent implementation of these changes are still up in the air.

Federal Amendments

In August, the Federal Parliament passed the Treasury Laws Amendment (2021 Measures No.1) Bill 2021, which has extended the temporary measures for electronic signing until next year.

It amends section 127 of the Corporations Act to allow for signing of a copy or counterpart of a document, meaning that signatories do not need to sign the same document, as long as each copy or counterpart of the document includes the entire contents of the document.

It also means a document does not require a “wet ink” signature, as long as an accepted method is used to identify the person signing electronically and it indicates that person's intention in relation to the contents of the document. If a document is executed by the affixing of a common seal, the witnessing may take place via audio-visual link (e.g. Zoom).

The method used to electronically sign the document must be reliable, taking into account the circumstances and the nature of the document (programs like DocuSign or AdobeSign would likely satisfy this requirement).

These amendments are due to expire on 31 March 2022. There is not permanent legislation to allow electronic signing, however government consultations are ongoing.

Queensland Amendments

Queensland temporary measures for COVID-19 have been further extended to 30 April 2022 with the assent to the Public Health and Other Legislation (Further Extension of Expiring Provisions) Amendment Act 2021.

The State Government is now looking to make certain measures permanent with the Justice Legislation (COVID-19 Emergency Response—Permanency) Amendment Bill 2021. If this bill passes, the changes we have seen over Covid will remain in place permanently.

This amendment extends the temporary Covid measures to allow for more flexibility when signing legal documents. These arrangements allow for electronic signing and audio-visual witnessing for documents such as affidavits, statutory declarations, general powers of attorney for businesses and deeds. As with the Federal laws, the signing will have to be done with an accepted method.

Documents that will not qualify for electronic signing include enduring powers of attorney, wills, general powers of attorney by individuals and sole traders and some Titles Office documents.

The passing of this bill will hopefully provide more clarity on which particular documents can be electronically signed and how they can be authenticated by witnesses.

While it may have taken a global pandemic to see electronic signing laws streamlined, it is a positive to see the law adapting to the times and simplifying the execution processes for businesses around the country.

Statutory Demand Threshold Increases to $4,000

On 27 May, the Corporations Amendment (Statutory Minimum) Regulations 2021 passed Parliament. This permanently increases the statutory demand threshold from $2,000 to $4,000.

A statutory demand is issued under section 459E of the Corporations Act. Most commonly it is used by a creditor to force a company to pay their debts within 21 days. If a company is unable to comply with the demand, they are presumed to be insolvent.

Throughout most of 2020, as part of the Federal Government’s Coronavirus Economic Response package, the threshold was increased to $20,000 and debtors were given six months to pay back debts. This package was subject of a prior post here. However, these measures ended on 31 December 2020.

Now the new changes are part of the government’s longer term insolvency reform plans to better address the needs of smaller businesses and create a more resilient economy post-pandemic.

Proponents of the increase say that a $4,000 threshold better adjusts to inflation and also acknowledges the typical legal fees associated with issuing a statutory demand. On the flip side, some say that a lower debtor company will now be able to slip under the threshold more easily.

Note: These changes will come into effect on 1 July 2021. If you issue a statutory demand prior to this, the $2,000 threshold will still apply.

BMW loses Ferrari after invalid PPSR Registration

A recent ruling in the Federal Court of Australia in Rohrt, in the matter of Rose Guerin and Partners Pty Ltd (in liq) v Princes Square W24NY Pty Ltd [2021] FCA 483, reminds us just how important correctly perfecting a security interest can be in the event of liquidation.


In June 2018, BMW Finance (BMW) entered into an arrangement with a company as trustee for a trust.

The arrangement was a chattel mortgage for a luxury vehicle. This mortgage was to be repaid monthly over a 5 year period. BMW registered this vehicle under the Personal Properties Securities Register (the PPSR), which protects registered interests in goods should a customer become insolvent and can give you priority among other creditors.

In November 2019, the Company was struggling to keep up with the repayments, therefore BMW agreed to vary the agreement to reduce the monthly repayment and extend the agreement by three months. However, on 19 December 2019, the Company was placed into administration and administrators were appointed with the Company subsequently going into liquidation.

On 11 February 2020, BMW received a notice of disclaimer of onerous property from the Liquidators which declared that they disclaimed the vehicle.

The amount owing on the vehicle was over $450 000 and according to the Liquidator’s affidavit, the finance associated with the vehicle was significantly in excess of its value. BMW was instructed by the Liquidators to liaise with the Company directly to repossess the Ferrari.

In May 2020, the Liquidators applied to the Court under section 530C of the Corporations Act to seize all property of the Company and a warrant was granted and the vehicle was seized by the Liquidators despite the Notice. When BMW’s solicitors queried why this occurred, the Liquidators stated that their actions were valid due to BMW’s ineffective PPSR registration.

Was BMW’s PPSR Registration defective?

Under section 164 of the Personal Properties and Securities Act (the PPSA), a security interest is ineffective if there is a seriously misleading defect in the registration and it is not necessary to prove that someone was mislead by it.

Even though the original chattel mortgage agreement with BMW provided that the Company purchased the vehicle as trustee for a trust, there was an issue with registration of the security, as the security was not registered under the ABN for the trust.

The Liquidators relied on the case of in the matter of OneSteel Manufacturing Pty Limited (administrators appointed) [2017] 93 NSWLR 61, where a financing statement should have been registered under the ACN, but the secured party used the ABN instead. This was found to be a defective registration under s 164 of the PPSA.

Was the Notice valid?

BMW by its own submissions conceded that their interest in the vehicle was defective and that they were unsecured creditors but BMW argued that the Liquidator’s notice of disclaimer affected their ability to seize the car.

The Court found that due to BMW’s unperfected security interest, when the Company went into administration, the vehicle automatically vested with the Company under section 267 of the PPSA, and this meant that the Company held the vehicle free from BMW’s security interest.

As the Notice was sent subsequent to the automatic vesting of the vehicle, the power of the liquidators to disclaim under section 568 of the Corporations Act was not enlivened because the Court disagreed with BMW’s submission that the vehicle was an onerous obligation due to its high value and lack of onerous obligations tied to the vehicle.

The Court therefore concluded that the Notice was null and void and this left BMW with a ‘personal claim’ against the Company but no proprietary interest in the vehicle.


This case serves as a timely reminder of the importance of correctly registering a security interest and always being prepared in the event of insolvency. Even large organisations like BMW are not immune from PPSR mishaps, which can be costly.


Morrison Government pursuing more insolvency reform

Ahead of next week’s federal budget, the Morrison Government has decided to pursue further measures to improve Australia’s insolvency framework for businesses.

Most notably, the threshold for which a creditor can issue a statutory demand on a company will increase from $2 000 to $4 000, this change is scheduled to take effect on 1 July 2021.

Other reforms being considered are:

  1. Changing how trusts are treated under insolvency law;
  2. a review of whether Safe-Harbour provisions, introduced in 2017, should remain; and
  3. introducing moratoriums on creditor enforcement while insolvency schemes are being negotiated

The changes being considered will build on the reforms which came into effect on 1 January of this year that streamlined the insolvency process and provided directors with greater control to restructure or wind down their operations. These changes were subject of a prior post which you can access here.

A copy of the Treasurer’s media release issued on 3 May 2021 can be accessed here.

With insolvency becoming an evolving space, professional legal advice is key for all businesses.

New illegal phoenixing laws to take effect this week

On 18 February 2021, the Treasury Laws Amendment (Combating Illegal Phoenixing) Act 2020 will come into effect seeking to curb illegal phoenix activity by introducing new offences and granting additional powers to ASIC and liquidators.

The Act, which was passed by Parliament in February 2020, introduces new measures designed to:

  • hold directors accountable;
  • prevent directors from improperly backdating their resignation; and
  • prevent directors from leaving their company with no directors.

Illegal phoenixing commonly occurs when company directors transfer the assets of an existing company to a new company without paying true or market value and leaving debts with the old company. Once the assets have been transferred, the old company is placed into liquidation and the directors continue to operate the business under the new company. When the liquidator is appointed to the old company, the creditors cannot be paid as there are no assets to sell.

From 18 February 2021, companies will no longer be able to remove the last remaining director on ASIC records. To enforce this, ASIC will reject lodgements submitted using a Form 484 - Change to company details or Form 370 - Notification by officeholder of resignation or retirement to cease the last appointed director without replacing that appointment.

Further, if ASIC is notified of a director’s cessation date more than 28 days after the effective date, then the effective date will be overridden and replaced with the lodgement date.

The introduction of this new legislation renders it vital that anyone who has resigned as a company director ensures that their resignation has been correctly lodged with ASIC.

insolvency lawyer

A Safe Harbour from the perils of COVID-19?

As COVID-19 continues to have an unprecedented impact on businesses across Australia, it is likely the safe harbour regime will be utilised more than ever before. In this blog post we outline the protections offered by the regime and how it will complement the recently announced temporary insolvency reforms to offer a saving grace in such uncertain times.

A safe harbour applies from the time that directors, who suspect insolvency, start to develop and implement a course of action that is reasonably likely to lead to a better outcome for the corporation than immediate administration or liquidation. It also operates as an exception to the insolvent trading provisions of the Corporations Act 2001 (Cth), however under the Government’s recently announced temporary economic measures, personal liability for insolvency has been waived for six months.

Safe harbour rules require directors to take an active role in the restructure, while acting honestly and genuinely. They must also use up-to-date financial information to assess the likely outcome of a restructure and comply with obligations to pay employee entitlements when they fall due. Meeting all of the company’s taxation reporting obligations, while properly maintaining books and records is also a requirement.

Under safe harbour rules, directors must engage with key stakeholders to develop and implement the restructuring plan. Once it becomes clear that a corporation is not viable, the protection of safe harbour will cease. Protections are not absolute and will require extensive advice and planning as well as consultation with key stakeholders. Their object is to encourage a restructure if it is reasonably likely to lead to a better outcome for the corporation.

Safe harbour does not to protect against other breaches of the Corporations Act and a liquidator may well still be entitled to pursue a creditor for an unfair preference.

The Safe Harbour regime signals a significant change to the corporate insolvency and restructuring landscape in Australia. They seek to maximise the opportunity for preserving a going concern to assist with a corporate restructure in appropriate circumstances. The reforms present a useful step towards dispelling the long-held view that insolvent trading in Australia is focused on punitive outcomes rather than promoting entrepreneurship. Given the uncertainty posed by the rapidly evolving COVID-19 pandemic, the Safe Harbour regime complements the Government’s temporary economic measures to provide a lifeline for Australian businesses.

You can read more commentary on changes to corporate law in response to the evolving COVID-19 situation here.


AAT considers stay of disciplinary action against deregistered liquidator

In Kukulovski and A Committee convened under section 40-45 of the Insolvency Practice Schedule (Corporations) [2020] AATA 40, the Administrative Appeals Tribunal applied Australia’s new insolvency practitioner discipline regime to review the cancellation of a liquidator’s registration.


Mr Kukulovski was a registered liquidator, who in 2014 and 2016 was the subject of ‘an extraordinarily lengthy investigation’ by ASIC. The investigation ensued after ASIC was made aware of concerns relating to Mr Kukulovski’s competence and diligence as an external administrator between 2009 and 2012.

In January 2019, ASIC gave Mr Kukulovski a show cause notice seeking a written explanation detailing why his liquidator registration should continue. ASIC was not satisfied with Mr Kukulovski’s response and convened a Committee in May 2019, pursuant to section 40-45 of the Insolvency Practice Schedule (Corporations).

In December 2019, the disciplinary Committee relied on section 40-55(1)(c) to cancel Mr Kukulovski’s registration. It also determined that ASIC should publish the Committee’s report of its decision.

Mr Kukulovski subsequently appealed to the AAT for review of the Committee’s decisions. Further, he sought that in the interim, implementation of the decisions be stayed pursuant to section 41(2) and for confidentiality orders under section 35(2).

Power to order a stay section 41(2)

In considering Mr Kukulovski’s application, the Tribunal noted a stay may only be granted if the Tribunal deems it ‘desirable’ to do so after “taking into account the interests of any persons who may be affected by the review.” The Tribunal also applied the approach outlined in Scott and ASIC [2009] AATA 798 which emphasises the importance of identifying how a stay order is likely to meet the purpose referred to in section 41(2).

In considering the interests of those affected by the review, the Tribunal accepted that Mr Kukulovski would be impacted, after he submitted he would suffer loss of livelihood and reputational damage. Namely, Mr Kukulovski cited Ristevski and TPB [2019] AATA 5196, asserting that he traded under the name of a national practice and would likely be unable to continue doing so if news spread that he was the subject of regulatory action. As such, he submitted that the loss of livelihood would impact his care for his pregnant partner, and his ongoing support of his former partner. However, the court concluded that he would be able to continue work as a registered liquidator and that his skill set therefore retained economic value.

Further, Mr Kukulovski asserted that he had suffered reputational damage as a result of the way in which ASIC and the Committee had conducted the investigation, and that he would continue to do so.

The Tribunal asserted that many of Mr Kukolovski’s difficulties would be remedied if his business partner took over the external administration of the entities Mr Kukulovski was forced to vacate. ASIC agreed this would be an acceptable outcome, however Mr Kukulovski disagreed.

In considering ASIC’s interests, the Tribunal noted it would not be adversely impacted if the cancellation decision were stayed, provided it was not also prevented from communicating news of what happened to the wider public. However, it was accepted that staying the decision may have some impact on ASIC’s perceived credibility and efficacy.

Public Interest

The Tribunal noted that as Mr Kukulovski was seeking a stay of the publication of the cancellation decision, it was important to consider cases which discussed open justice. In doing so, the court cited ASIC v AAT [2009] FCAFC 185 which provides that a Tribunal should be cautious about making confidentiality orders under section 35 in cases where the public might be deprived of information it would otherwise expect to receive about administrative action being taken.

Accordingly, the Tribunal noted that whilst Mr Kukulovski was not accused of dishonesty or intentional bad behaviour, that was not a complete answer to ASIC’s opposition to a stay. Rather, Mr Kukulovski’s incompetence had the potential to cause significant damage.

Mr Kukulovski submitted that he had since undergone extensive professional education and developed insight into his practice and conduct. Further, he contended that as the event occurred some time ago and there had since been no serious question about his performance, there was nothing to suggest he was a risk to the public.

Despite accepting that the events were not recent, the AAT expressed concern that Mr Kukulovski would not be sufficiently monitored to detect unsatisfactory performance, as ASIC could not be expected to spend extra resources doing so. As such, the AAT held that public interest militated against staying the cancellation decision, and that if the decision to cancel was stayed, public interest weighed in favour of allowing publication of the report.


The AAT ultimately refused to stay the Committee’s cancellation decision on public interest grounds, but did stay the Committee’s decision that ASIC publish the disciplinary Committee’s report. Despite this, ASIC was not prevented from stating that it had taken regulatory action against Mr Kukulovski and that the Committee’s decision was the subject of an AAT review.

Insolvent trading moratorium extended to New Year

This morning the Federal Government announced it will continue to provide regulatory relief for businesses impacted by COVID-19 by extending temporary insolvency and bankruptcy protections until 31 December 2020.

These measures, originally set to expire on September 30, include:

Bankruptcy changes

  • Increase in the minimum debt threshold for a creditor-initiated bankruptcy procedure from $5,000 – $20,000;
  • The time to respond to a bankruptcy notice increased from 21 days to 6 months;
  • An extension of the protection period for individual’s declaring an intention to present a debtor’s petition extended from 21 days to 6 months.

Insolvency Changes

  • Increase in minimum amount for a statutory demand from $2,000 – $20,000;
  • Increase in time to respond to a statutory demand from 21 days to 6 months;
  • Temporary suspension of directors’ personal liability for insolvent trading for six months (egregious cases of dishonesty will still attract criminal liability);
  • Insertion of s 588GAAA which provides an additional temporary safe harbour provision during the six-month period.

Treasurer Josh Frydenberg commented that “the extension of the temporary changes to the insolvency and bankruptcy laws will continue to provide businesses with a regulatory shield to help them get across to the other side of the crisis.”