FEDERAL COURT OF AUSTRALIA Walker and Moloney v CBA Corporate Services (NSW) Pty Limited [2012] FCA 328 Citation: Walker and Moloney v CBA Corporate Services (NSW) Pty Limited [2012] FCA 328 Parties: PETER WALKER AND GREGORY MOLONEY IN THEIR CAPACITY AS LIQUIDATORS OF ZYX LEARNING CENTRES LIMITED (FORMERLY A.B.C. LEARNING CENTRES LIMITED) (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 079 736 664 AND OF THE COMPANIES LISTED IN SCHEDULE 1 and ZYX LEARNING CENTRES LIMITED (FORMERLY A.B.C. LEARNING CENTRES LIMITED) (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 079 736 664 AND THE COMPANIES LISTED IN SCHEDULE 1 v CBA CORPORATE SERVICES (NSW) PTY LIMITED ABN 25 072 765 434 AND THE COMPANIES LISTED IN SCHEDULE 2 File numbers: NSD 1500 of 2011 NSD 496 of 2012 Judge: NICHOLAS J Date of judgment: 5 April 2012 Catchwords: CORPORATIONS – application for extension of time under s 588FF(3)(b) of Corporations Act 2001 (Cth) (the Act) – whether appropriate to grant extension and if so for how long – relevant considerations CORPORATIONS – application pursuant to s 459A of the Act for order that companies already the subject of voluntary winding up be wound up in insolvency – where sole purpose for seeking such order is to enable liquidators to rely upon s 588FJ – relevant considerations CORPORATIONS – whether necessary for party seeking order under s 459A to adduce evidence of insolvency as at relation-back day – relevance of lack of such evidence to exercise of discretion under s 459A Legislation: Corporations Act 2001 (Cth) ss 95A(1), 95A(2), 459A, 459P(1), 459R(1), 467B, 513A, 588FE, 588FF, 588FJ Cases cited: Ann Street Mezzanine Pty Ltd (in liq) v Beck (2009) 175 FCR 532 BP Australia Ltd v Brown (2003) 58 NSWLR 322 Carter v New Tel [2003] NSWSC 128; (2003) 44 ACSR 661 Commissioner of Taxation v Tull Reinforcing Pty Ltd (2006) 153 FCR 394 Green v Chiswell Furniture Pty Limited (in liq) [1999] NSWSC 608 New Cap Reinsurance Corporation Ltd (in liq) v Reaseguros Alianza SA [2004] NSWSC 787; (2004) 186 FLR 175 Date of hearing: 1 November and 2 December 2011, 23 February and 2 April 2012 Date of last submissions: 2 April 2012 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 83 Counsel for the Plaintiffs: Mr M Cashion SC with Mr J Baird Solicitor for the Plaintiffs: Addisons Counsel for the Defendant: Mr J Sheahan SC with Mr A McGrath Solicitor for the Defendant: Henry Davis York IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1500 of 2011 BETWEEN: PETER WALKER AND GREGORY MOLONEY IN THEIR CAPACITY AS LIQUIDATORS OF ZYX LEARNING CENTRES LIMITED (FORMERLY A.B.C. LEARNING CENTRES LIMITED) (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 079 736 664 AND OF THE COMPANIES LISTED IN SCHEDULE 1 First Plaintiffs ZYX LEARNING CENTRES LIMITED (FORMERLY A.B.C. LEARNING CENTRES LIMITED) (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 079 736 664 AND THE COMPANIES LISTED IN SCHEDULE 1 Second Plaintiffs AND: CBA CORPORATE SERVICES (NSW) PTY LIMITED ABN 25 072 765 434 AND THE COMPANIES LISTED IN SCHEDULE 2 Defendants JUDGE: NICHOLAS J DATE OF ORDER: 5 April 2012 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to s 588FF(3)(b) of the Corporations Act 2001 (Cth) (the Act) the period within which application may be made under s 588FF(1) of the Act for an order against the defendants or any of them be the period ending on 15 June 2012. 2. The first plaintiff's costs and expenses of this application be costs and expenses of the liquidation of the second plaintiffs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 496 of 2012 BETWEEN: PETER WALKER AND GREGORY MOLONEY IN THEIR CAPACITY AS LIQUIDATORS OF ZYX LEARNING CENTRES LIMITED (FORMERLY A.B.C. LEARNING CENTRES LIMITED) (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 079 736 664 AND OF THE COMPANIES LISTED IN SCHEDULE 1 First Plaintiffs ZYX LEARNING CENTRES LIMITED (FORMERLY A.B.C. LEARNING CENTRES LIMITED) (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 079 736 664 AND THE COMPANIES LISTED IN SCHEDULE 1 Second Plaintiffs AND: CBA CORPORATE SERVICES (NSW) PTY LIMITED ABN 25 072 765 434 AND THE COMPANIES LISTED IN SCHEDULE 2 Defendants JUDGE: NICHOLAS J DATE OF ORDER: 5 April 2012 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Each of the second plaintiffs be wound up in insolvency pursuant to s 459A of the Corporations Act 2001 (Cth) (the Act). 2. Peter Walker and Gregory Moloney be appointed as joint liquidators. 3. The requirements to advertise or publish notice of this application under s 465A of the Act and Federal Court (Corporations) Rules 2000 r 5.6, and to serve the application on the second plaintiffs and serve a copy of the order on the second plaintiffs, under s 470(2)(b) of the Act be dispensed with, pursuant to s 467(3)(b) of the Act. 4. The first plaintiff's costs and expenses of this application be costs and expenses of the liquidation of the second plaintiffs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1500 of 2011 NSD 496 of 2012 BETWEEN: PETER WALKER AND GREGORY MOLONEY IN THEIR CAPACITY AS LIQUIDATORS OF ZYX LEARNING CENTRES LIMITED (FORMERLY A.B.C. LEARNING CENTRES LIMITED) (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 079 736 664 AND OF THE COMPANIES LISTED IN SCHEDULE 1 First Plaintiffs ZYX LEARNING CENTRES LIMITED (FORMERLY A.B.C. LEARNING CENTRES LIMITED) (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION) ACN 079 736 664 AND THE COMPANIES LISTED IN SCHEDULE 1 Second Plaintiffs AND: CBA CORPORATE SERVICES (NSW) PTY LIMITED ABN 25 072 765 434 AND THE COMPANIES LISTED IN SCHEDULE 2 Defendants JUDGE: NICHOLAS J DATE: 5 April 2012 PLACE: SYDNEY REASONS FOR JUDGMENT INTRODUCTION 1 There are two related proceedings before me involving the same parties. The first plaintiffs, Mr Peter Walker and Mr Gregory Moloney (the Liquidators), are the liquidators of ZYX Learning Centres Limited (In Liquidation) (ABC), formerly known as ABC Learning Centres Limited. ABC and 38 other companies (identified in schedule 1) in the same group (the ABC Learning Group) are the second plaintiffs. 2 On 6 November 2008 the ABC Learning Group went into voluntary administration. The Liquidators were appointed voluntary administrators of the companies in the group. 3 Also on 6 November 2008, Chris Honey, John Cronin and Murray Smith of McGrathNicol (the Receivers) were appointed receivers and managers of the ABC Learning Group. ABC Learning Group was, at that time, the largest operator of childcare centres in Australia. It operated over 1,000 child care centres and employed over 14,500 employees in its Australian operations. It also conducted substantial operations in other countries including the USA, the United Kingdom and New Zealand. ABC Learning Group had a particularly complex corporate structure that was due in part to growth driven by merger and acquisition. 4 On 2 June 2010 the creditors of the ABC Learning Group resolved that the companies in the group be wound up voluntarily. 5 The defendants comprise a syndicate of 8 banks (the Banks) and their agent, CBA Corporate Services (NSW) Pty Ltd (CCS). The Banks (identified in schedule 2) provided funds to the ABC Learning Group before the appointment of the Receivers. By 10 December 2007, the Banks had provided $1.43 billion to the ABC Learning Group. 6 The Liquidators are contemplating bringing proceedings against the Banks in relation to various transactions which resulted in a significant proportion of the amounts owing to the Banks being repaid in the six months prior to the commencement of the voluntary administration. There are at least two claims that the Liquidators are contemplating making against the Banks. 7 The first claim is for the recovery of what the Liquidators may allege were voidable transactions within the meaning of s 588FE of the Corporations Act 2001 (Cth) (the Act). In the present proceedings the Liquidators seek an order under s 588FF(3) of the Act extending the time within which they may make any application under s 588FF in respect of such transactions until 5 August 2012. 8 The second claim arises under s 588FJ of the Act. Section 588FJ provides that a floating charge given by a company being wound up in insolvency is void as against the company's liquidator if given during the relation back period. The Liquidators seek an order that each of the second plaintiffs be wound up in insolvency pursuant to s 459A of the Act so as to enliven s 588FJ. 9 The Liquidators also seek, "out of an abundance of caution", an order extending the time within which to bring any application made in reliance upon s 588FJ until 5 August 2012. The relevant statutory provisions 10 Section 459A of the Act provides that, on an application under s 459P, the Court may order that an insolvent company be wound up in insolvency. 11 A company is solvent if, and only if, it is able to pay all of its debts as and when they become due and payable: s 95A(1). A company that is not solvent is insolvent: s 95A(2). The persons who are eligible to apply for an order against a company under s 459A include a liquidator of the company: s 459P(1). Section 467B provides that the court may make an order under s 459A even if the company is already being wound up voluntarily. 12 Section 513A provides that if the Court makes an order under s 459A in respect of a company that is already being wound up, then the winding up of the company is taken to have commenced when the previous winding up commenced. Hence, if a company that is being wound up pursuant to a creditors' voluntary winding up pursuant to a resolution of creditors carried at a time when the company was in administration, then the winding up in insolvency will commence from the date of the commencement of the administration. That date will also be the "relation-back day": see the definition of that expression in s 9 of the Act. 13 Section 588FF(1) provides that where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of s 588FE then the court can make one or more of a number of different types of orders. Section 588FF(3) provides: (3) An application under subsection (1) may only be made: (a) during the period beginning on the relation-back day and ending: (i) 3 years after the relation-back day; or (ii) 12 months after the first appointment of a liquidator in relation to the winding up of the company; whichever is the later; or (b) within such longer period as the Court orders on an application under this paragraph made by the liquidator during the paragraph (a) period. 14 Section 588FJ provides: (1) This section applies if: (a) a company is being wound up in insolvency; and (b) the company created a floating charge on property of the company at a particular time that is at or after 23 June 1993 and: (i) during the 6 months ending on the relation-back day; or (ii) after that day but on or before the day when the winding up began. (2) The charge is void, as against the company's liquidator, except so far as it secures: (a) an advance paid to the company, or at its direction, at or after that time and as consideration for the charge; or (b) interest on such an advance; or (c) the amount of a liability under a guarantee or other obligation undertaken at or after that time on behalf of, or for the benefit of, the company; or (d) an amount payable for property or services supplied to the company at or after that time; or (e) interest on an amount so payable. (3) Subsection (2) does not apply if it is proved that the company was solvent immediately after that time. (4) Paragraphs (2)(a) and (b) do not apply in relation to an advance so far as it was applied to discharge, directly or indirectly, an unsecured debt, whether contingent or otherwise, that the company owed to: (a) the chargee; or (b) if the chargee was a body corporate--a related entity of the body. (5) Paragraphs (2)(d) and (e) do not apply in relation to an amount payable as mentioned in paragraph (2)(d) in so far as the amount exceeds the market value of the property or services when supplied to the company. (6) If, during the 6 months ending on the relation-back day, or after that day but on or before the day when the winding up began, a debt secured by the charge was discharged, out of the company's money or property, to the extent of a particular amount (in this subsection called the realised amount), the liquidator may, by proceedings in a court of competent jurisdiction, recover from the chargee, as a debt due to the company, the amount worked out in accordance with the formula: Unsecured amount – Realisation Costs where: "realisation costs" means so much (if any) of the costs and expenses of enforcing the charge as is attributable to realising the realised amount. "unsecured amount" means so much of the realised amount as does not exceed so much of the debt as would, if the debt had not been so discharged, have been unsecured, as against the liquidator, because of subsection (2). 15 A floating charge includes a charge that conferred a floating security at the time of its creation that has since become a fixed or specific charge: see definition of "floating charge" in s 9 of the Act. 16 Assuming that the order sought by the Liquidators under s 459A is made, the effect of s 588FJ(2) is to make void against the Liquidators any floating charge granted by companies in the ABC Learning Group within 6 months ending on 6 November 2008, subject to certain exceptions including if it is proved that the company which granted the floating charge was solvent immediately after it was granted: s 588FJ(3). PREVIOUS ORDERS 17 It is common ground that the three year period specified in s 588FF(3)(a) expired on 5 November 2011. However, on 16 September 2011 Jacobson J made a number of consent orders in proceeding number NSD 1500 of 2011 including the following: 5. Pursuant to section 588FF(3)(b) of the Corporations Act 2001 (the Act) the period within which an application may be made under section 588FF(1) of the Act for an order against the Defendants or any of them be extended to the period ending two weeks after final determination of the Plaintiff's application filed on 5 September 2011, or such other date as the Court orders. 6. Pursuant to section 588FF(3)(b) of the Act the period within which application may be made under section 588FJ of the Act for an order against the Defendants or any of them be extended to the period ending two weeks after final determination of the Plaintiff's application filed on 5 September 2011, or such other date as the Court orders. 18 As well as seeking orders under s 588FF(3)(b) of the Act in proceeding number NSD 1500 of 2011 the plaintiffs also sought, in the same proceeding, an order under s 459A of the Act. After the hearing of that proceeding concluded, it became necessary for the plaintiffs to commence the second proceeding, number NSD 496 of 2012, seeking the same order under s 459A as was sought in the first proceeding: see s 459R(1) of the Act which provides that an application for a company to be wound up in insolvency is to be determined within six months after it was made. The first proceeding was commenced on 5 September 2011 and it had not been determined within six months after it was made. The second proceeding was commenced on 2 April 2012. With the consent of all parties an order was made that the evidence and submissions in the first proceeding shall stand as evidence and submissions in the second proceeding. The defendants also made an admission that there had been no material change in the financial circumstances of each of the plaintiff companies since the date of the hearing in the first proceeding. factual background Dealings between the Banks and the ABC Learning Group 19 The Banks provided to the ABC Learning Group funding under a Syndicated Multi Option Facility dated 10 December 2007 (the Facility Agreement) which was on an unsecured basis, supported by negative pledge arrangements, cross-guarantees and restrictions on dealing with assets by the ABC Learning Group. Total facilities provided under the Facility Agreement in three tranches were $1.430 billion, including $1.310 billion for Tranche A. The Facility Agent for the Banks was Commonwealth Bank of Australia Limited (CBA). 20 On 28 May 2008 ABC sought the consent of the Facility Agent on behalf of the Banks to a proposed disposal of 60% of its USA interests pursuant to a Purchase Agreement with Morgan Stanley Private Equity dated 21 April 2008 for the price of approximately US$400 million (the US Sale). The consent of the Banks was required for the US Sale, as otherwise the ABC Learning Group would have been in breach of various covenants in the Facility Agreement. The Purchase Agreement was also conditional on consent being obtained. 21 On 29 May 2008 CBA as agent for the Banks gave such consent on terms that provided for: the delivery of payment directions for a total of US$385,230,000 to be paid directly to CBA by two payments upon settlement of the US Sale; the Facility Agreement being amended to provide for a substantial reduction in the facility limit and the creation of charges over the ABC Learning Group. 22 On 24 June 2008, a Security Trust Deed (the Security Trust Deed) was executed between 16 members of the ABC Learning Group as chargors and CCS as Security Trustee, providing for CCS to hold the certain securities on trust for the Banks. 23 On 25 June 2008 CCS offered to the 16 ABC Learning Group companies which were party to the Security Trust Deed to release them from the Facility Agreement and enter into an Amendment and Restatement Deed (the Restatement Deed). On the same date the Restatement Deed was executed between ABC Learning Group and the Banks. 24 On 10 July 2008 the 16 ABC Learning Group companies specified in the Security Trust Deed executed a Deed of Charge with CCS which was registered at ASIC on 14 July 2008 (the Charge). A similar charge was executed and registered in South Australia in respect of South Australian assets. 25 The Charge contained the usual clauses whereby each chargor charged all of its interest in the charged property (as defined) to the chargee as security for the due and punctual payment of the secured moneys. The Charge operated as a fixed charge over all the chargor's present and future interest under certain parts of the charged property, including any marketable securities and any book debt or any other debt but not the proceeds of any such debt. 26 Between 20 June 2008 and 25 June 2008 completion of the US Sale took place in the USA. On 25 June 2008 settlement proceeds in the amount of approximately US$409 million were remitted to CBA. Of that amount, US$310 million was repaid to the Banks, while the remainder was transferred to ABC Learning Group. 27 On 1 September 2008 ABC Learning Group sold what was referred to in evidence as its UK Vouchers Business and received £95.16 million on settlement. Of this amount, approximately £90.3 million (including £5.6 million costs) was repaid to the Banks, resulting in a net repayment of £84.7 million. That repayment was required by clauses 3.7(a), 10.1(y) and 11.9(a) of the Restatement Deed. 28 On 27 October 2008 additional charges were granted by certain members of the ABC Learning Group to the Banks. Mr Moloney's evidence 29 Mr Moloney gave evidence that the companies in the ABC Learning Group were insolvent as at 2 June 2010 (the date the Liquidators were appointed) and 5 September 2011 (the date the first proceeding was commenced). The Banks did not admit the insolvency of the ABC Learning Group companies but made it clear in their submissions that, for the purposes of the present proceedings, they would not contest a finding of insolvency as at 5 September 2011 and at all material times thereafter. 30 Mr Moloney gave evidence of the insolvency of the ABC Learning Group both as a whole and on a company by company basis. His evidence indicates that the Banks are still owed in excess of $833 million and that, allowing for asset sales which are yet to occur, the anticipated shortfall to the Banks is likely to be in excess of $800 million. Priority claims in the winding up amount to approximately $6.7 million and there are unsecured creditors (excluding the shortfall due to the Banks) of approximately $1.214 billion. The single largest unsecured creditor is Australian Executor Trustees Limited which is owed $600 million. Mr Moloney's estimate of the overall deficiency of assets to liabilities in the winding up of the ABC Learning Group was approximately $2.19 billion as at 5 September 2011. 31 Mr Moloney's evidence does not deal with the solvency of the ABC Learning Group as at 6 November 2008 (the relation-back day) because, according to the Liquidators, insolvency as at that date is irrelevant to the application now before me. 32 Mr Moloney has not yet formed a view as to whether the relevant transactions pursuant to which the Banks received moneys are voidable transactions under Pt 5.7B of the Act. Nor has he formed a view as to whether any of the moneys received by the Banks represented the proceeds of assets the subject of a floating charge which might be void as against the Liquidators in the event that s 588FJ of the Act applied. 33 Mr Moloney gave evidence that any proceedings that may be brought against the Banks will give rise to complex factual and legal issues and will be costly to run. He also gave evidence that, at the present time, the Liquidators do not have the funds required to commence and maintain proceedings against the Banks. 34 According to Mr Moloney, the Liquidators are presently in discussions with IMF Australia Ltd (IMF) with a view to having it fund any proceedings the Liquidators take against the Banks. IMF has already funded various public examinations which the Liquidators have conducted between December 2009 and July 2011. However, Mr Moloney says that IMF is not committed to fund any further action by the Liquidators at this time. 35 Mr Moloney has also given evidence of difficulties encountered by the Liquidators in obtaining access to books and records of the ABC Learning Group. These difficulties are partly explained by the fact that the Receivers took possession of many documents which only became available to the Liquidators during the course of the public examinations. 36 According to Mr Moloney, the Receivers took possession of all of the ABC Learning Group's books and records following their appointment. The Liquidators have been dependent upon the Receivers making the books and records available as and when requested by the Liquidators. The books and records are voluminous. Mr Moloney says that they were poorly kept and lacked "transparency". He says that some of the electronic records have been difficult to analyse because the Liquidators have not had access to the accounting systems and software required for that purpose. The Receivers' Accounting Document 37 The evidence includes a number of documents the Banks rely upon as suggesting that the Banks have not recovered any amount under the floating charge after allowing for realisation expenses. The documents (which form part of Exhibit GMM8) were tendered by the Liquidators with a view to showing how much had been received and paid by the Receivers. Mr Moloney said (at para 22): On 11 October 2011, my office received an email from the Receivers enclosing a File Note dated 30 September 2011 and accompanying Excel spreadsheet entitled "Receivers' Accounting for the ABC Group to 29 July 2011" ("Receivers' Accounting Document"). A copy of those documents is at tab 5 of Exhibit "GMM8". The Receivers' Accounting Document sets out the amounts received and paid by the Receivers in their receivership of the ABC Group from their appointment up to 29 July 2011, on a company by company basis as indicated at the top of each column and with the group position set out in the column headed "Total Receivership". I have no information which would cause me to disagree with the data in the Receivers' Accounting Document. Accordingly, I have used that data in preparing the Statements of Position referred to in this affidavit. 38 The particular document described by Mr Moloney as the "Receivers' Accounting Document" is actually an annexure to the e-mail of 11 October 2011 and a memorandum prepared by the receivers or their staff. The e-mail relevantly states: Please find attached a more detailed breakdown of the receivers' receipts and payments accounts for the ABC Group from the date of our appointment to 29 July 2011. I also attach some explanatory notes setting out the basis of allocating particular receipts and payments between fixed and floating charges, as well as across various ABC Group entities. We have allocated the trading receipts and payments across a number of ABC entities that held the leases of individual child care centres in order to be as conservative as possible, even though all of the employment, trading contracts and transactions were conducted through ABC Developmental Learning Centres Pty Ltd. In preparing this analysis, we have identified a number of cost areas that may be more conservatively attributed to fixed charge realisations. The attached receipts and payments therefore presents a reduced shortfall to priority creditors arising from floating charge realisations and costs compared to the summary we provided to you previously, although the shortfall remains material. The principal costs that have been redesignated from floating charge to fixed charge are: • Overseas professional costs: $4.94 million • Media and PR costs: $1.51 million; and • Receivers' fees: $7.23 million As a result, total costs of realisation allocated to floating charge assets have been reduced from $26.92 million to $13.24 million, resulting in a shortfall in floating charge realisations of $6.78 million. Ms Merrick's evidence 39 The Banks rely upon evidence from Ms Merrick, a partner of Henry Davis York, the Banks' solicitors. Ms Merrick gave evidence that the Liquidators first foreshadowed making an application under s 459A and s 588FF(3)(b) in a letter from their solicitors to Henry Davis York on 25 July 2011. 40 Ms Merrick gave evidence as to the work performed by the Receivers since their appointment and explained that the majority of the businesses and assets of the ABC Learning Group, including the whole of their Australian businesses, have now been sold by the Receivers. She also gave evidence concerning various public announcements made by IMF between 2008 and 2011 concerning its intention to fund various proceedings concerning the ABC Learning Group. Some of these announcements relate to the funding of an action by shareholders of the ABC, while others relate to the funding of the public examinations conducted by the Liquidator in relation to proceedings which might be brought by them against the Banks. 41 Ms Merrick also gave evidence concerning the various public examinations that have been conducted by the Liquidators. The Liquidators (initially in their capacity as administrators) conducted public examinations in April 2010 and again in June and July 2011. Large quantities of documents have been produced pursuant to orders for production. Ms Merrick's evidence is that of the 17 current or former employees of the Banks who have been examined, seven have already left such employment while another is on extended leave. That fact is relied upon by the Banks in support of a submission that the Banks have suffered or are likely to suffer prejudice as a consequence of the Liquidators' delay in commencing any proceeding against the Banks under s 588FF(1). 42 Ms Merrick also refers in her affidavit to a report prepared by the Liquidators as early as January 2009 which indicates that the Liquidators had already spent a significant amount of time investigating potential claims against the Banks. Other evidence indicates that the Liquidators have believed since at least 17 March 2010 that the ABC Learning Group was insolvent. The Authorities Extension of Time 43 The matters to be considered for the purpose of determining an application under s 588FF(3) are well settled. There are three matters which must usually be considered. First, the court must consider the explanation for the delay in commencing the proposed proceedings within the three year period provided for by the statute. Secondly, it is necessary, subject to what follows, for the court to undertake a preliminary review of the merits of the proposed proceeding. Thirdly, the court must consider any prejudice likely to be suffered in the event the extension sought is granted. 44 The preliminary review of the merits of the proposed proceedings is "an investigation as to whether such proceedings would be so devoid of prospects that it would be unfair, by granting an extension, to expose the other party to the continuing prospect of suit": Green v Chiswell Furniture Pty Ltd (in liq) [1999] NSWSC 608 per Austin J at para [15]. However, a review of the merits may be unnecessary if the purpose of the application for an extension of time is to allow the liquidator time in which to properly decide whether or not to bring the proposed proceedings: Green v Chiswell per Austin J at para [15]: see also the summary of the relevant principles of White J in New Cap Reinsurance Corporation Ltd (in liq) v Reaseguros Alianza SA [2004] NSWSC 787; (2004) 186 FLR 175 at paras [52]-[55]. 45 While s 588FF(3)(b) confers a general discretion upon the court, it is necessary for the applicant for the extension to satisfy the court that it should be granted. The discretion is to be exercised by asking what is fair and just in all the circumstances of the case having regard to the relevant factors: BP Australia Ltd v Brown (2003) 58 NSWLR 322 per Spigelman CJ at para [187] with whom Mason P and Handley JA agreed at paras [215] and [216] respectively. One factor that is relevant to the exercise of the discretion is the rationale for the existence of the three year limitation: ibid at paras [182]-[186]. 46 In BP Australia Ltd v Brown Spigelman CJ at paras [188]-[189] also approved the following statement by Austin J (the primary judge in that case) in relation to the relevance of delay: The adequacy of the plaintiffs' explanation for delay is not an independent criterion, but rather it is a factor to be weighed up with all other relevant factors in the exercise of the discretion. The degree of delay in the present case would not necessarily be acceptable in a case where failure to take proceedings has caused prejudice to the prospective defendants, or in a case where the insolvent administration is uncomplicated and fully funded. On the other hand, a greater degree of delay might be acceptable in a case where, for example, there is an indubitable entitlement to recover an unfair preference of a very large amount for the benefit of unsecured creditors, and no prejudice to the potential defendant other than the prejudice of repaying money which he was not entitled to receive. Winding-up in insolvency 47 It is well established that a creditors' voluntary winding up and a winding up in insolvency are two different things. The fact that a company is the subject of a creditors' voluntary winding up does not necessarily mean that the company was, at any relevant time, insolvent. For a company to be wound up in insolvency it must be the subject of a winding up order under s 459A of the Act. The company against which such an order is to be made must be shown to be insolvent. 48 Before an order can be made that a company be wound up in insolvency, it is necessary for the applicant for such an order to show that the company was insolvent both at the date the winding up application was filed and at the date of the hearing of the application: Ann Street Mezzanine Pty Ltd (in liq) v Beck (2009) 175 FCR 532 at para [9] per Finkelstein J. 49 In Carter v New Tel [2003] NSWSC 128; (2003) 44 ACSR 661 Austin J observed at para [5] that a company that is already the subject of a creditors' voluntary winding up should not be wound up in insolvency unless there is good reason for the making of an order under s 459A. The reason for this is that there is often little practical difference between a creditors' voluntary winding up and a winding up in insolvency: Commissioner of Taxation v Tull Reinforcing Pty Ltd (2006) 153 FCR 394 at para [17]. In the latter case, Besanko J declined to make an order that a company that was already the subject of a creditors' voluntary winding up be wound up in insolvency because he was not persuaded that there was any good reason to do so. In particular, his Honour was not satisfied that a winding up in insolvency would provide any benefit to the creditors of the company. 50 Significantly, in the course of explaining why he had made an order under s 459A, Austin J said in New Tel at para [15]: By making an order under that section, I made it possible for the liquidator whom I appointed (Mr Hall) to attack the validity of the charges under s588FJ. On the evidence before me, there seemed to me to be a plausible case for such a challenge to be made, and a probability that if the challenge was successful, the unsecured creditors would receive a substantial benefit. 51 New Tel is therefore an example of a case in which an order was made under s 459A against a company already the subject of a creditors' voluntary winding up so that the liquidators might have the benefit of s 588FJ. In that case the liquidators were originally appointed as administrators on 10 December 2002, and they reported to creditors on 2 January 2003. In accordance with their recommendations, the creditors resolved on 13 February 2003 that the company be wound up and they were then appointed liquidators. On 3 March 2003 the administrators who were by this time the liquidators of the company, applied for an order that the company be wound up in insolvency. Austin J said at para [4]: There was ample evidence before me that the company has been insolvent for some time. In their report to creditors dated 2 January 2003, Mr Carter and Mr Hall reached the interim conclusion that by 30 June 2002 the company was unable to pay its debts as and when they fell due. The question whether the company the subject of his Honour's order under s 459A was insolvent at the relation-back day was not expressly addressed by Austin J. The parties' submissions Extension of Time 52 The Liquidators seek an order extending time under s 588FF(3) until 5 August 2012. Such an extension is necessary, the Liquidators submitted, so that they may further consider whether or not to commence proceedings against the Banks in respect of the transactions described by Mr Moloney in his affidavit evidence which I have referred to earlier in these reasons. 53 In support of their application, the Liquidators contend that any delay in bringing proceedings under s 588FF(1) is explained by difficulties facing the Liquidators in what is admittedly a large and complex winding up complicated by the existence of the receivership. 54 The Banks' submission in relation to any extension under s 588FF(3) was not so much that no extension should be granted, but that it should be granted for a substantially lesser period than that which was sought by the Liquidators. In particular the Banks argued that: there had been an inadequate explanation for the delay in commencing any proceedings under s 588FF(1) of the Act against the Banks; that it was undesirable that the Banks be left in a state of uncertainty for any extended period of time as to whether or not they might be the subject of proceedings under s 588FF(1); it was likely that the Banks would be prejudiced if an extension is granted. 55 In relation to the issue of prejudice, the Banks submitted that the longer it took for the Liquidators to commence any proceedings against them under s 588FF(1), the more difficult and costly it becomes for the Banks to marshal the evidence to be relied upon by them in defence of such proceedings. Winding-up in insolvency 56 It was common ground that none of the second plaintiffs was being "wound up in insolvency" and that s 588FJ could not apply to any floating charge given to the Banks for so long as that remained the case. It was also common ground that it was open to the Court to make an order that a company the subject of a creditors' voluntary winding up be wound up in insolvency so as to enliven s 588FJ. 57 The Banks submitted that it is relevant for the Court to know whether the companies in the ABC Learning Group were insolvent as at 6 November 2008 (the relation-back day) because "[t]he procedural and substantive advantages of being given resort, retrospectively, to s 588FJ by the … Liquidators should not be made available if the company is not shown to be insolvent at that time." The logic of the Banks' submissions is this: if a person having the necessary standing had sought to have the companies wound up in insolvency on the relation-back day, it would have been necessary for that person to establish that the companies were insolvent as at that date; it would be unjust for the Liquidators to be given the advantage arising out of an order made under s 459A coupled with, in this case, a relation-back day of 6 November 2008, unless they can establish that the companies were insolvent as at that date. 58 As I have mentioned, the Liquidators have not called any evidence addressing solvency as at that date because, in their submission, it is not a relevant consideration. The Liquidators submit that all they are required to show for the purpose of obtaining a winding up order under s 459A is that the companies against which the order is sought were insolvent at the date the application was filed and at the date of the hearing provided that there is a good reason why such an order should be made given that the companies are already the subject of a voluntary winding up. Consideration Extension of time 59 In support of their application for the extension of time sought, the Liquidators point to the complex structure of the ABC Learning Group. The Liquidators also point to the complexity of the relevant transactions, the problems involved in obtaining access to relevant books and records, and delays in securing funding in respect of the proposed proceedings. 60 The Banks, in opposing the application, point to the fact that various people previously employed by the Banks have since left their employment and that others are likely to do so in the future. The Banks also point to what they say is the insufficient explanation proffered by the Liquidators for the delay in commencing any proceedings against them. 61 I have had regard to what the Banks described as the prejudice that will be suffered by them if the extension sought by the Liquidators is granted. However, I am not satisfied that the Banks have been prejudiced in any significant way by the delay that has occurred to date. Nor am I satisfied that the Banks will be prejudiced in any significant way if the Liquidators are allowed until mid-June 2012 to commence any proceedings they may wish to commence against the Banks under s 588FF(1) of the Act. There is no doubt that the proceedings which the Liquidators are considering bringing against the Banks will be complex, time consuming and costly to run. Even so, it seems to me that by 15 June 2012 the Liquidators will have had sufficient time to conclude their discussions with IMF and to commence the proposed proceedings against the Banks if that is what they decide to do. 62 I therefore propose to grant the Liquidators an extension of time under s 588FF(3)(b) to 15 June 2012. 63 The orders sought by the Liquidators also included the following: To the extent that the period within which an application under s 588FJ of the Act is required to be brought within the period specified in s 588FF(3)(a) of the Act, an order pursuant to s 588FF(3)(b) of the Act that the period within which application may be made under s 588FJ of the Act for an order against the Defendants or any of them be the period ending on 5 August 2012. 64 I do not think there is any reason to make such an order. Section 588FJ of the Act is not expressed to be subject to s 588FF(3) or any other provision to similar effect. There is therefore no need for any additional order to be made in respect of any proceeding brought under s 588FJ of the Act. Winding-up in insolvency 65 It is accepted by all parties that before an order can be made under s 459A the court must be satisfied that the company against which the order is to be made was insolvent as at the date the application for such an order was filed and as at the date of the hearing. 66 In the present case I am satisfied that each company within the ABC Learning Group is insolvent and was insolvent as at the date upon which the Liquidators filed their applications for orders that such companies be wound up in insolvency. 67 There is nothing in the relevant provisions of the Act that expressly or impliedly requires the applicant for an order under s 459A to establish the insolvency of a company that is already the subject of a voluntary winding up as at the relation-back day. Nevertheless, I accept that the solvency (or insolvency) of the company at such a date may be relevant to an application under s 459A. Two particular situations come to mind. 68 The first is where it is relevant to the merits of the proceeding in which s 588FJ is to be relied upon. The effect of s 588FJ(3) is that a floating charge given by a company being wound up in insolvency is not void as against the liquidator "if it is proved that the company was solvent immediately after that time." The time referred to in s 588FJ(3) is the time at which the floating charge was created. It would be open to a person who had taken a charge from a company that was the subject of a voluntary winding up to show that the company was solvent immediately after the charge was given and that there would therefore be no good reason to order that the company be wound up in insolvency. The Court would not make an order under s 459A if the only reason for doing so was to enable a liquidator to commence a proceeding under s 588FJ that was bound to fail. 69 Another is where there is prejudice to the potential defendant by reason of the loss or destruction of evidence. The evidence on the application might show that evidence concerning the circumstances in which the charge was given, including evidence of a company's solvency at or subsequent to that time, had been lost or destroyed in circumstances where there had been significant delay on the part of the liquidator in moving for an order under s 459A. The court might then consider that, even though there might be good reason for making the order sought, there might also be good reason for not making it because the person against whom s 588FJ was to be invoked may have been unfairly prejudiced as a result of the liquidator's delay in applying for an order under s 459A. 70 It was not suggested by the Banks that no order should be made under s 459A because the ABC Learning Group was solvent at the time the relevant changes were given. Nor was it suggested that evidence concerning solvency as at the date the charges were given had been lost or destroyed or that the making of an order under s 459A would otherwise be likely to prejudice the Banks in the relevant sense. The fact that the Liquidators may be able to rely upon s 588FJ if an order is made under s 459A is not in itself a relevant prejudice. 71 The absence of evidence of insolvency as at the relation-back day is not a matter to which I attach much weight in the present case. I accept that if it was shown that the ABC Learning Group was solvent at or after that date then that might be very relevant to the exercise of discretion. But there is no evidence before me one way or the other to show that the ABC Learning Group was solvent as at that date. While it was open to the Liquidators to adduce evidence of insolvency as at the relation-back day, it was equally open to the Banks to adduce evidence of solvency as at that date. The Banks did not seek to adduce any evidence (of the Receivers or otherwise) directed to establishing that the ABC Learning Group was solvent as at the relation-back day. 72 I do not accept the Banks' contention that, as a matter of discretion, the Liquidators should not be put in a position where they obtain the forensic advantages of s 588FJ without having established insolvency as at the relation-back day. In my view, the adoption of such an approach is incompatible with the general nature of the discretion that must be exercised by the court in determining whether it is appropriate to order that a company already the subject of a voluntary winding up should be wound up in insolvency. 73 The Banks argued that other matters which were relevant to the exercise of the discretion should lead me to refuse to make an order under s 459A. There were three further matters upon which the Banks relied in that regard. 74 The first matter concerned the information contained in the Receivers' Accounting Document referred to by me earlier in these reasons. It is conceivable, assuming the Receivers' calculations are correct, that the Liquidators might obtain no advantage from s 588FJ because there would be no sum recoverable under subs (6) after deduction of realisation costs. 75 In their submissions, the Liquidators did not accept the accuracy of the Receivers' calculations, and while I understood Mr Moloney to have relied on some of the information contained in the Receivers' Accounting Document, I did not understand him to have accepted the Receivers' calculations as correct in all respects. In particular, I did not understand Mr Moloney to have adopted the Receivers' allocation of asset realisations as between the floating and the fixed charges. 76 The Receivers' conclusion that there was a shortfall in floating charge realisations is almost certainly based upon a number of assumptions at least some of which are likely to be controversial. In this regard, I note that there was no evidence from the Receivers to explain their calculations or any of the assumptions underlying them. In my view the Receivers' calculations do not provide a sufficient basis to conclude that the Liquidators' proposed claim under s 588FJ is without merit or that it is otherwise appropriate to deny relief under s 459A so as to prevent the Liquidators from taking advantage of that section. 77 The second matter raised by the Banks was a general contention that the Liquidators should not be permitted to obtain the benefit of s 588FJ in circumstances where the Liquidators have believed since 17 March 2010 that the ABC Learning Group was insolvent. 78 Delay in making the application under s 459A is plainly a relevant factor. However, it must not be assumed against the Liquidators that they were required to apply for an order under s 459A merely because they understood that the ABC Learning Group was insolvent. There is no reason in this case to make an order under s 459A except for the purpose of enabling the Liquidators to rely upon s 588FJ in proceedings which they might commence against the Banks. The Liquidators have not yet decided whether or not they will commence such proceedings. In any event, having taken the delay in applying for the s 459A order into account, I do not think it such as to justify me not making such an order. 79 The third matter raised by the Banks concerns the impact that the Liquidators' delay will have on the Banks. The Banks argued that they will need to reconstruct the Receivers' asset realisations and the state of the borrower's accounts from time to time to determine whether particular recoveries were the product of asset realisations pursuant to fixed or floating charges. I do not think this is a matter that should be given much weight. In the first place it is not supported by the evidence. The documents sent by the Receivers to the Liquidators (the Receivers' Accounting Document) referred to earlier in these reasons suggest that the Receivers were quite mindful of the need to distinguish between recoveries made out of asset realisations from fixed charges as opposed to floating charges. 80 In resisting the making of an order under s 459A, the Banks also relied upon the submissions they put in relation to the Liquidators' application under s 588FF(3) including, in particular, the fact that potential witnesses have already left the Banks' employment and that others would probably do the same in the future. I have taken these matters into account. Again, I do not regard them as particularly significant in my overall assessment of whether it is appropriate to make an order under s 459A. Even if an order under s 459A had been made long ago, there is nothing to show that this would have had any significant impact one way or another on the Banks' ability to secure access to their former employees for the purpose of having them assist the Banks in their defence of any proceedings that may be commenced by the Liquidators. 81 The sole advantage identified by the Liquidators in obtaining an order made under s 459A is that it will enable them to rely upon s 588FJ should they decide to commence a proceeding against the Banks in reliance upon that section. If such a proceeding is commenced, and if it proves successful, then unsecured creditors of the ABC Learning Group are likely to reap the benefits. In this case a very substantial corporate collapse has left the unsecured creditors, together owed many hundreds of millions of dollars, in a position where they have no prospect of receiving anything out of the winding up unless the Liquidators recover some substantial amount from the Banks. I have given considerable weight to the interests of the unsecured creditors in deciding whether or not to make an order under s 459A. 82 In the circumstances, I am satisfied that the order sought by the Liquidators under s 459A of the Act should be made. 83 There will be orders accordingly. I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas. Associate: Dated: 5 April 2012 SCHEDULE 1 Company Name ACN Child Care Centres Australia Limited 100 250 646 Hutchinson's Child Care Services Limited 100 493 874 Kids Campus Limited 099 815 472 Peppercorn Management Group Limited 087 155 860 A.B.C. Canadian Holdings Pty Limited 126 839 941 A.B.C. Corporate Care Pty Limited 098 738 928 (now known as ZYX Corporate Care Pty Limited) A.B.C. Developmental Learning Centres Pty Limited 010 788 502 (now known as ZYX Developmental Learning Centres Pty Ltd) A.B.C. Early Childhood Training College Pty Limited 069 159 566 (now known as ZYX Early Childhood Training College Pty Limited) A.B.C. Education Services Pty Limited 107 310 743 A.B.C. Employment Services Pty Limited 130 442 394 A.B.C. European Holdings No. 1 Pty Limited 122 710 123 A.B.C. European Holdings No. 2 Pty Limited 122 710 132 A.B.C. European Holdings No. 3 Pty Limited 128 132 829 A.B.C. Land Holdings Pty Limited 108 964 227 A.B.C. Learning Centres Finance Pty Limited 125 820 395 A.B.C. New Ideas Pty Limited 112 237 377 (now known as ZYX New Ideas Pty Limited) A.B.C. Queensland Pty Limited 129 029 769 A.B.C. USA Holdings Pty Limited 121 360 147 A.B.C. USA Property Holdings No. 1 Pty Limited 126 641 665 A.B.C. USA Property Holdings No. 2 Pty Limited 126 641 674 Childcare Development Solutions Pty Limited 107 241 181 ATF the Childcare Development Solutions Unit Trust DPPA Pty Limited 114 743 092 Flel Pty Limited 096 172 075 FutureOne Pty Limited 009 221 470 HCCS Operations Pty Limited 097 846 707 Kids Campus (W.A.) Pty Limited 112 150 099 Kids Campus Australia Pty Limited 104 407 187 Kids Campus Holdings Pty Limited 107 379 751 Klendo Pty Limited 098 366 968 Marshen Pty Limited 101 400 104 Peppercorn Holdings No. 1 Pty Limited 095 599 250 Peppercorn Holdings No. 2 Pty Limited 099 074 781 Peppercorn Holdings No. 3 Pty Limited 100 679 374 Peppercorn Holdings No. 4 Pty Limited 101 236 766 Peppercorn Holdings No. 5 Pty Limited 103 201 136 Peppercorn Holdings No. 6 Pty Limited 103 210 751 Premier Early Learning Centres Pty Limited 100 831 856 Select Child Care Management Pty Limited 093 925 056 SCHEDULE 2 Company Name ACN/ABN Commonwealth Bank of Australia Limited 123 123 124 Westpac Banking Corporation 33 007 457 141 National Australia Bank Limited 12 004 044 937 Australia and New Zealand Banking Group Limited 11 005 357 522 Citibank NA 34 072 814 058 Mizuho Corporate Bank Ltd 83 099 031 106 Bank of America NA 51 064 874 531 Bank of Western Australia Limited 050 494 454