Two weeks ago, the Victorian Supreme Court of Appeal dismissed an appeal in Donchiod Pty Ltd (in liq) v Merrion B Pty Ltd [2024] VSCA 44 which considered whether the Supreme Court of Victoria had jurisdiction to make a winding up order in circumstances where the application of the slip rule had been invoked to extend the time for determination of a winding up application under section 459R of the Corporations Act 2001 (Cth) (the Act). Section 459R of the Act provides that a winding up application must be determined within 6 months after it is made. An extension to extend the time must be made within the period or as last extended and where special circumstances justify the extension. If the winding up application is not determined within the 6 month period, it is dismissed. The Court of Appeal considered whether Justice Hargrave erred in finding no error in the Associate Justice’s exercise of discretion to apply the slip rule when he made an order extending time for determination of the winding up application.

Catherine Pulverman has been acting for the Liquidator since his appointment in September 2020 and dealing with a range of issues in the liquidation including proceedings issued for uncommercial transactions relating to the transfer of two properties owned by Donchiod to related entities just prior to the winding up order, dealing with an appeal against proofs of debts lodged by related creditors (which was consolidated with the transfer proceedings) and those proceedings being settled a month before trial.

The relevant facts of this matter can be summarised as follows:

• On 2 March 2020, the winding up application was a contested hearing before the Associate Justice;
• At the conclusion of the hearing, judgment was reserved;
• Several days after the hearing, further written submissions were filed by the parties;
• The 6 month period expired in April 2020 being a month after the contested hearing;
• In June 2020, the petitioning creditor applied to extend the period under section 459R and the parties filed written submissions;
• On 14 August 2020, the Associate Justice made orders with reasons (see Merrion B Pty Ltd v Donchiod Pty Ltd [2020] VSC 499) to rectify his order made at the conclusion of the winding up hearing to include an order extending the time for determination of the winding up application under section 459R to 4 September 2020. The orders made on 14 August 2020 under the slip rule were clearly intended to give effect to the intention which the Court would have had, to extend the time under s 459R, on 2 March 2020 but for the failure to make such order which led to the accidental slip or omission.
• In September 2020, a winding up order was made with reasons for judgment (see Merrion B Pty Ltd v Donchiod Pty Ltd (No 2) [2020] VSC 566). A stay of 14 days was granted in order for an appeal to be considered. At no time before 17 September 2020 (when the stay expired) or before 29 September 2022 (when the application for leave to appeal was first made) did the director seek to lodge an appeal in the name of the company.

In late September 2022, the director of Donchiod Pty Ltd (In Liquidation) (Donchiod) sought leave to appeal out of time and 2 years after the winding up order was made and in doing so, he had to persuade Justice Hargrave that the Associate Justice had no power to make the winding up order on the basis that the winding up application had been automatically dismissed by virtue of the operation of section 459R of the Act – there was no basis for the application of the slip rule by the Associate Justice to an earlier order made by him.

Relying on the case of Hyrcenko v Hrycenko [2022] FCAFC 152 (Hrycenko), which was handed down weeks before the application for leave to appeal was lodged, Hrycenko concerned the use of the slip rule to correct an order in a bankruptcy matter (where the slip rule was applied after the sequestration order was made and the Court determined that this was an improper use of the slip rule).

Despite being granted leave under section 198G3(b) of the Act to commence and prosecute applications by Donchiod to extend the time for seeking leave to appeal, the delay was not satisfactorily explained and Donchiod was insolvent and therefore, the application for leave to appeal was dismissed by Justice Hargrave in the decision of Merrion B Pty Ltd v Donchiod Pty Ltd [2023] VSC 499.

Thereafter, the director lodged an application for leave to appeal the decision of Justice Hargrave. The appeal was primarily based on the operation of section 459R and whether the slip rule can be used to retrospectively extend the time (after the time has already automatically expired) for determination of a winding up application – in other words, it was his position that once the winding up application has been dismissed under section 459R, it cannot be enlivened by an order under the slip rule – therefore, the Associate Justice had no jurisdiction to make a winding up order in September 2020 as there was no winding up application on foot at that time. In the appeal, the director argued that an earlier decision of Elyard Corporation Pty Ltd Ltd v DDB Needham Sydney Pty Ltd (1995) 61 FCR 385 (Elyard) was “plainly wrong” and that the slip rule could not be invoked to extend the time for determination of a winding up application which has already been automatically dismissed by virtue of section 459R. In Elyard, the Court determined that the slip rule can be used to correct an earlier order and extend the period under section 459R retrospectively – an order was made after the 6 month period had expired by utilising the slip rule so that the earlier order (made before the expiry of the 6 month period) included the extension order under section 459R.

Together with the petitioning creditor, the Liquidator successfully opposed the appeal.

The Court of Appeal granted leave to appeal but dismissed the appeal in a unanimous decision by Justices Kennedy, Macaulay and Lyons (3-0), primarily on the basis that Elyard was not wrongly decided, bankruptcy cases are different, the Associate Justice would have extended the period if it was raised prior to its expiry (being at the conclusion of contested hearing) as there was no other decision which would have been made and the time for lodging the application for leave to appeal was too long. The slip rule was applicable and the Associate Justice had power to make the winding up order. Importantly, the Court of Appeal stated that:

“…There must be no ‘room for debate’ that the discretion would have been exercised in favour of an extension. The discretion is also controlled by the need for ‘special circumstances’ and for the order to be clearly appropriate to avoid injustice. However, provided that such stringent requirements are met, we do not accept that there must also be certainty as to the period which would have been applicable judged as at the time of the earlier order. Such an approach would frustrate the purposes of the slip rule which is to operate in the interests of justice so as to accurately reflect the court’s intentions.” [at 123]

In this case…the application had been heard and the decision reserved… Such an approach clearly reflects the ‘whole of the situation’ the associate judge intended to achieve after reserving his decision — which was to keep the application on foot pending delivery of his decision. His actions in hearing the matter, granting leave to amend the interlocutory process, and giving a direction for further submissions were otherwise a complete waste of time.” [at 124]

Furthermore, the Court of Appeal did not accept the reliance on the Hrycenko case:

“The decision in Hrycenko is not of great assistance to the applicant in this case. First, as the judge observed, none of the three judges expressly stated that the reasoning in Elyard was wrong or plainly wrong. Secondly, the slip rule order in this case was made prior to the date that the winding up order was made. Finally, and most critically, the case was concerned with different legislation in circumstances where the ultimate question must turn on an examination of the relationship between the particular statutory provision and the slip rule power.” [at 66]

Ultimately, the Court of Appeal was not satisfied that Elyard was “plainly wrong”:

“We are not satisfied that the Court in Elyard was wrong in concluding that s 459R does not render the slip rule to be unavailable. It was certainly not ‘plainly wrong”. [at 94]

It was a complex and interesting argument raised by the director but with carefully drafted submissions supported by case law together with brief oral submissions on behalf of the Liquidator (and the petitioning creditor), the Court was satisfied that the appeal should be dismissed with costs.

Catherine Pulverman of FCW Lawyers has considerable experience in respect of winding up applications including dealing with appeals concerning the winding up order. Catherine acted as Counsel in both of these appeals and prepared all written submissions and oral submissions as required and her insolvency experience and familiarity with the liquidation was critical. She would be happy to provide any necessary advice or act in relation to these issues as they can often involve complex arguments and must ensure that the most cost-effective outcome is achieved for the insolvency practitioner.