Public Examinations

The Rules

  • The chief mechanism by which liquidators and administrators are able to obtain information about a failing company is sections 596A and 596B of the Corporations Act 2001 (Cth) (Act).
  • This mechanism is particularly important in the current environment, and enables an applicant to discover the truth of the circumstances connected with the affairs of a company. The purpose of public examination provisions were summarised by Mason JC in Hamilton v Oades (1989) 166 CLR 486 at 4896:

There are the two important public purposes that the examination is designed to serve. One is to enable the liquidator to gather information which will assist him in the winding up; that involves protecting the interests of creditors. The other is to enable evidence and information to be obtained to support the bringing of criminal charges in connexion with the company’s affairs…

  • These provisions provide a powerful and useful tool for liquidators and eligible applicants, to summons company officers, or a party with information pertaining to a company’s affairs, history and management, to be examined under oath in Court.
  • There are two different types of examinations an eligible applicant can apply for, a mandatory examination under section 596A of the Act, or a discretionary examination under section 596B of the Act.
  • Mandatory examinations provide a mechanism whereby the Court must order “officers” of the company to be examined through the Court.
  • Discretionary examinations may be brought against a much wider class of persons, whereby an application can examine a third party about information in relation to the company’s examinable affairs if that person has taken part in the examinable affairs of the company.  The kind of individuals ordinarily examined pursuant to this section include the company’s accountants, auditors, solicitors, insurers and directors’ spouses.

What is an examination and what can an examinee expect?

  • An examination is generally an investigative exercise, and the process gives the applicant a potentially broad avenue to question an officer of the company or third party with knowledge of the examinable affairs of a company.
  • The Act provides that the Court may order a transcript of the questions put to a person and the answers given by them to be signed by the examinee.
  • The information obtained by an applicant, subject to claims for privilege, can be used to prosecute an examinee at a later time. Potentials claims include but are not limited to claims for insolvent trading, uncommercial transactions and unfair preferences.

Abuse of process

  • The examination summons should be filed with a supporting affidavit which identifies the reason for the examination and why the party should be examined. The affidavit is confidential and is not available for inspection by the proposed examinee without a Court order.
  • The person applying for an examination summons bears an obligation to make full and frank disclosure of all matters, (both favourable and unfavourable) which might affect the orders sought. If the application does not satisfy these thresholds, the orders for examination are liable to be set aside.
  • Examples of abuse including examining a witness to destroy their credibility, using the examination process to obtain a forensic advantage or making an application which cannot be characterised as being for the benefit of the company or creditors’.
  • It is important that applicants ensure that examinations are conducted for a proper purpose, otherwise they risk the application being considered an abuse of process liable to be set aside. They should ensure that an examinee is not oppressed by the procedure or unfairly disadvantaged.

How can we help

  • The benefit of an examination process depends on many factors, including what can be achieved from the examination process and the potential claims the company may have.
  • If you have received a summons for public examinations or consider you are an eligible applicant to apply for a public examination, you should talk to an experienced insolvency lawyer to seek legal advice.