Legal proceedings need to be filed before the end of any relevant limitation period, otherwise they will be time-barred — often irreparably. There are various reasons why a person may delay commencing proceedings – for example, they may be waiting on litigation funding before prosecuting their claim or need more time to gather evidence in order to decide whether to proceed. Once commenced, if a plaintiff serves the proceedings prematurely, they and the defendant will begin to incur costs for which the plaintiff may be liable if the proceedings need to be abandoned (for example, because the funding or evidence does not eventuate).  For those reasons, proceedings may be commenced (within the limitation period), but service delayed. 

Service of proceedings cannot be delayed indefinitely, however. The judgment of the Supreme Court of New South Wales in Re ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) [2023] NSWSC 461 (Arrium) illustrates how delayed service can impede a plaintiff from being able to pursue proceedings.

Background of Arrium’s operations

The Arrium Group carried on an integrated mining, iron ore export, steel manufacturing, steel recycling and steel distribution business on the east coast of Australia. On 7 April 2016, voluntary administrators (shortly thereafter replaced by another firm) were appointed to 94 companies within the Arrium Group. The incumbent voluntary administrators subsequently became deed administrators and finally liquidators of relevant Arrium Group entities. As deed administrators, they sold Arrium’s Moly-Cop consumables business for US$1.23 billion. The proceeds of sale were distributed to Arrium’s financiers.  Unsecured creditors did not receive any of the proceeds.

A group of Arrium’s unsecured trade creditors held credit insurance under policies with Atradius which responded to Arrium’s insolvency. Atradius claimed that the sale proceeds had wrongly been paid to the financiers and sued the former deed administrators and the financiers for approximately $1.2 billion. It commenced the proceedings by filing an Originating Process in August 2022. It did not, at this stage, serve the proceedings, while it continued to investigate whether to commence public examinations.

Events then unfolded as follows:

• August 2022: a final dividend was paid to Arrium’s creditors.
• September 2022: Atradius sought an order from the Court extending indefinitely the time for service of its Originating Process. The Court expressed a view that the application for an extension of time to serve the proceedings should be served on the defendants before being heard.
• November 2022: Atradius applied for examination summonses. No summonses were issued, pending the extension application.
• February to April 2023: Atradius served the extension application on the defendants.
• April 2023: Atradius’ extension application was heard.
• May 2023: the Court refused to extend the time for service of the Originating Process with the result that Atradius’ proceedings were stale and dismissed by the Court.

When do Corporations Act proceedings need to be served?

Proceedings brought under the Corporations Act 2001 (Cth) (Corporations Act) must be served:

• as soon as practicable after filing; and
• at least 5 days before the date fixed for the hearing; and
• within a maximum period set by the Court rules (often 6 or 12 months).

Certain types of Corporations Act proceedings have shorter time periods for service, such as an application to wind up a company or to set aside a statutory demand.

If proceedings are not served within time, they may be recommenced unless the limitation period for the claims has expired. If it has expired, the only option is to obtain an extension of time for service from the Court. An application to extend time may be made after the time for service has already elapsed.

Key factors relevant to the Court’s consideration of whether to extend time include the reasons for the delay in service and the prejudice caused to the defendant by the delay. The prejudice to the defendant is assessed by considering whether the defendant would have acted differently if it had been served within time, and whether and when the defendant was notified of the unserved proceedings.

Arrium Decision

The Court found that Atradius did not file its proceedings as soon as practicable, nor within the maximum period of 6 months. It also declined to extend the time for service for a number of reasons, including:

• Atradius had not provided a sufficient explanation of its delay in seeking litigation funding (to the extent that it wished, as distinct from needed, to obtain such funding) or seeking to undertake examinations; and
• The former deed administrators would suffer prejudice where Atradius’ delay in serving the Originating Process deprived them of the opportunity to hold back a sixth distribution to creditors, to fund their costs of defence of the proceedings and any damages to which they might potentially be exposed to in them (which the Court readily inferred they would likely have done had they been given prompt notice of the application, immediately after it was filed). Prejudice would also be caused to the financiers.

The Court also assessed the factual and legal basis for Atradius’ claims and considered that they were not sufficiently strong or particularised.

While the requirement to serve "as soon as practicable" appears strict, its application depends on all of the circumstances of the case. There are examples where plaintiffs have been permitted to wait several months before serving proceedings in order to conduct further investigations or obtain funding.

The Court in Arrium considered that a delay of one month between filing proceedings and applying for an extension of time to serve them resulted in non-compliance with the Court rules in circumstances where Atradius had not satisfied the Court that it was impracticable to have served the proceedings within that month. The Court contrasted the “perfunctory” evidence led by Atradius for the reasons for the delay with the “comprehensive” evidence led in other cases in which the time for service had been extended and as compared with the substantive prejudice that would be caused to the deed administrators and financiers by the extension.

Take aways: options where a plaintiff requires more time

Arrium illustrates the risks to a plaintiff who delays service of Corporations Act proceedings. There is no guarantee that the Court will permit late service, and if it does not, the proceedings may be time-barred. Each situation needs to be considered on a case-by-case basis but a plaintiff who requires more time prior to service (for example, in order to investigate or obtain funding for proceedings) may benefit from considering other available options, including:

• seeking an extension of time, preferably before the time for service has elapsed;
• giving notice of the proceedings to the defendants without serving them, to reduce the possibility of the defendants being prejudiced by delay; and
• filing and serving the proceedings, and then seeking one or more adjournments of the proceedings.