By Georgina King a Senior Associate of Matthews Folbigg, in our Insolvency, Restructuring and Debt Recovery Group.
The insolvency law reforms which came into effect on 1 March 2017 include a new section defining the relation-back day for the purpose of voidable transactions involving companies in liquidation and prevent an anomaly which previously resulted in the relation-back day for certain winding ups being later than it should have been.
Definition section
The new section of the Corporations Act 2001 (Cth) (Act) (section 91) created by the reforms defines “relation-back day” for the purposes of a winding up using a table listing the factual scenarios that apply to the winding up of a company, and next to each scenario whether the relation-back day will be the section 513C day under the Act, or the day on which an application for winding up of the company was filed. The definition of relation-back day previously set out in section 9 of the Act has been replaced by reference in section 9 to the meaning set out in section 91 of the Act.
Parties issuing demands or commencing court proceedings in respect of voidable transaction claims should be mindful of the new section to be referred to when describing or referring to the relation-back day arising under the Act.
Relation-back day anomaly corrected
The table in section 91 makes it clear that where a company has been in administration or subject to a deed of company arrangement immediately prior to being wound up, and an application to have the company wound up was filed prior to the administration, the relation-back day will be the date of filing of the winding up application rather than the later date when the administration commenced.
The only exceptions to the above are if:
- a company is wound up by special resolution following administration, and although a winding up application had been filed prior to the administration, the application to wind up had been dismissed or withdrawn prior to the commencement of the administration; or
- a company is wound up by creditor resolutions to terminate a deed of company arrangement and have the company wound up, and while a winding application had been filed prior to the administration, the winding up application was dismissed or withdrawn prior to the termination of deed and winding up resolutions being passed.
The above fixes an anomaly which until now arose in a number of court decisions including Chief Commissioner of State Revenue v Rafferty’s Resort Management Pty Ltd (In Liq) [2008] NSWSC 452. In Rafferty’s, Austin, J confirmed that the way that the Act was drafted meant that in the Court’s view if a company was in administration immediately prior to winding up, the relation-back day would be the date of commencement of the administration (in that case 29 January 2008), and not the date of filing of an earlier winding up application (20 September 2007). This was the case notwithstanding that the winding up application had not been dismissed or withdrawn and that the company was ultimately wound up. Deferral of the relation-back day to the date of administration had a significant impact on the transactions the liquidators were in a position to pursue as voidable transactions under the Act.
Austin, J noted that the above produced an anomalous result and that conversely, if the company had not been placed into administration, the date of the winding up application would have constituted the relation-back day. Further to the fact that there was no logic in this result and the impact it had on what the relation-back period for voidable transactions would be, in His Honour’s view the evidence in Rafferty’s supported an inference that the directors had used the voluntary administration for the purpose of deferring the relation-back period to avoid certain payments being the subject of voidable transaction claims under the Act.
The resolution of this issue through the reforms will have a significant impact in some cases in terms of the transactions that will fall within the voidable transaction provisions based on when an application to wind up the company was filed in circumstances where the company has subsequently been placed into administration prior to winding up.
Read the full decision of the Court in Chief Commissioner of State Revenue v Rafferty’s Resort Management Pty Ltd (In Liq) [2008] NSWSC 452 here
If you would like more information or advice in relation to insolvency, restructuring or debt recovery law, contact Georgina King on (02) 9806 7485 or georginak@matthewsfolbigg.com.au or a Principal of the Matthews Folbigg Insolvency, Restructuring & Debt Recovery Group:
Jeffrey Brown on (02) 9806 7446 or jeffreyb@matthewsfolbigg.com.au
Stephen Mullette on (02) 9806 7459 or stephenm@matthewsfolbigg.com.au
