IS THE CLOCK TICKING ON A POTENTIAL PREFERENCE ACTION?
19th March, 2013
Often a liquidator obtains information and evidence about possible preference payments a considerable time after the liquidation starts. In those cases, it is important to act on the information quickly to avoid the potential preference claim becoming statute-barred.
Section 588FF(3) of the Corporations Act 2001 requires court actions to recover preference payments to be commenced within the later of:
(a) 3 years after the relation back day; or
(b) 12 months after the first appointment of a liquidator in relation to the winding up of the company.
While it is possible for the liquidator to apply to the court for an extension of time in which to file proceedings, the three year (or 12 month) time frame is strict. Applications to extend the time period must be filed before the expiry of the limitation period. If this does not occur then the action becomes statute-barred and no extensions can be obtained.
Therefore, a timely decision must be made by the liquidator - whether to commence proceedings for the recovery of preference payments based on the information currently available or to apply for an extension of time. Importantly, any extension of time application must not be left until the last minute. If a court refuses an extension of time application and delivers its judgment after the expiration of the limitation period, the liquidator will then be statute-barred from commencing proceedings.
Requirements for an extension of time application
In determining whether to exercise its discretion to grant an extension of time to commence a claim to recover a preference, the court will aim to do what is just and fair in the circumstances. While section 588FF(3) does not list any criteria the court must consider in the exercise of its discretion, established case law indicates that the court will, at the very least, take into account:
1. Any explanation for the delay in commencing proceedings for the recovery of the preference payment;
2. A preliminary view of the merits of the proceedings the subject of the extension of time application; and
3. Any prejudicial effects of granting an extension.
How can we help?
At Scoglio Law, we are able to action preference claims quickly by analysing the available evidence, providing quick advices on prospects and taking urgent steps to file court proceedings prior to the expiration of applicable limitation periods.
If you have a potential preference action which needs immediate attention or would like our assistance in actioning matters which you feel have become stagnant or are beginning to concern you, please contact Tony Scoglio or David of Scoglio Law on (07) 3833 2100 or email tony@scogliolaw.com.au or david@scogliolaw.com.au.
- Avoid potential preference claims becoming statute-barred
- Application for extension of time
- A timely decision must be made by the liquidator
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