[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_column_text]Public examinations are a useful tool for insolvency practitioners and creditors to obtain information and establish facts about a company’s affairs, history and management.
The key provisions are set out in sections 596A and 596B of the Corporations Act 2001 (Act) and provide external administrators (Liquidators, Administrators, Deed Administrators, Receivers and Managers), with the power to examine the company officers or persons with knowledge of the examinable affairs of the company.
The examinable affairs of a company include:
- the promotion, formation, management, administration or winding up of a corporation; or
- any other affairs of the corporation; or
- the business affairs of a connected entity to the corporation.
Who can seek an examination?
Public examinations are extremely useful tools for external administrators and may also be utilised by other ‘eligible applicants’ such as:
- The Australian Securities and Investment Commission (ASIC); and
- A person authorised in writing by ASIC.
Historically the Courts have considered shareholders and creditors to be eligible to conduct public examinations of directors and officers of the company. Given the broad scope of ‘a person authorised in writing by ASIC’ other stakeholders may be considered an eligible applicants in the right circumstances.
Who can be examined?
After considering the scope of a company’s examinable affairs, clearly, almost any person with knowledge of the company’s affairs or the business affairs of a connected entity of the company may be examined. The type of examination summons which will be issued will depend upon who is the intended examinee. The options are as follows:
- A mandatory examination pursuant to section 596A of the Act may be brought against a director or officer of the company; or
- A discretionary examination pursuant to section 596B of the Act may be brought against any person connected to the company’s examinable affairs. That person may have taken part or been concerned in the company’s examination affairs and has been or may have been guilty of misconduct in relation to the company. Alternatively, that person may be able to provide information about the company’s examinable affairs.
Recent authority indicates that if you wish to make an application for an examination summons, it is crucial to ensure that there is a proper purpose for the examination. Largely, the primary purpose of the examination can show a demonstrable benefit to the company, its creditors or contributories.
Without a proper purpose for the examination, the recipient of the summons may seek to have the examination set aside as an abuse of process.
What can public examinations be used for?
Our team have long utilised the power of public examinations in a range of circumstances to gather the information that would not generally be available.
Case Study 1
In one particular matter, the company in liquidation was owed approximately $4.5 million from 18 construction companies. It was difficult to obtain a reasonable response from the construction companies as they asserted claims to set off without providing documentation to support their claims.
In this instance, the liquidator determined a public examination of the project managers of the construction debtors was the most effective way to obtain the information necessary to assess the amounts owing to the company. As part of this process, production orders pursuant to section 597(9) of the Act were sought so that the construction companies were required to provide documentation in relation to the debt owed.
By utilising the public examination process, the liquidator was able to obtain the information required to assess the amounts owing to the company and formulate a series of claims against the construction companies.
The project managers subject to the examination summons were required to give evidence, under oath in open court. This strategy allowed the liquidator to collect the information needed to understand the true amounts owing to the company by the construction companies, after allowing for valid costs incurred by those companies.
Notably, the production of documents made by the majority of the construction debtors allowed the claims to be resolved without needing a full public examination. In total, the liquidator has so far recovered $1.35 million which otherwise would not have been recovered.
Case Study 2
In another matter, the director of a company subject to a deed of company arrangement was undertaking legal actions in the company’s name. The litigation had been lengthy and had stalled as the director was unable to continue to fund the litigation. It should be noted that a number of settlement offers had been provided and rejected. The respondent was claiming that they did not have sufficient funds to meet the claim, whilst the director believed that they did in fact have the funds available.
The director was under significant pressure, as a condition of the arrangement with creditors was that a contribution would be made to the Deed Fund from the legal action recoveries which he was unlikely to be able to make by the deadline. If not paid, the company would enter liquidation and a liquidator would be unfunded to continue the litigation.
The deed administrator was able to gain an advantage in the proceedings by making an application to the Court seeking production orders regarding the respondent’s ability to make payment of any Order.
This strategy encouraged the respondents to put forward a more reasonable offer in respect of their financial position, which enabled the matters to be settled without the need to go to trial.
Takeaway
If you are seeking answers to questions concerning a company’s affairs, a public examination and/or production orders may be the tool to get the job done.
Article written by Rebecca Coates (Supervisor) – SV Partners Adelaide [/vc_column_text][vc_empty_space][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][social_share_list][/vc_column][vc_column width=”1/3″][vc_column_text][likebtn theme=”drop” dislike_enabled=”0″ icon_dislike_show=”0″ ef_voting=”bounce” tooltip_like_show_always=”1″ bp_notify=”0″][/vc_column_text][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][templatera id=”478″][/vc_column][/vc_row]