What Are Public Examination Summons?
Public examinations are a powerful tool used by liquidators to discover or clarify information about the affairs of a company and assist in winding-up proceedings.
In this article, we will be looking at the nature of these public examinations in insolvency law and its limits following the decision in ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) v Michael Thomas Walton [2020] NSWCA 157 (Arrium v Walton).
The nature and process of Public Examinations
Public Examinations compel company officers or other parties to attend court and be formally examined on oath about the affairs of a company as well as produce documents. This can be applied for by either ASIC or an insolvency practitioner such as a liquidator or an administrator.
There are two types of examinations which applicants may apply for under the Corporations Act 2001 (Cth). These are:
- Mandatory Examinations under s 596A
If the applicant meets the requirements of the provision, then the court has no discretion and must issue the summons. It is important to note that this will examination must benefit the company, its creditors, its members or the public generally.
- Discretionary Examinations under s 596B
An application under this section provides wide discretion to the court to approve an examination so long as the person in question had taken part or been concerned in examinable affairs of the corporation and may be guilty of misconduct or may be able to give information about examinable affairs of the company.
Applications under this section should also be accompanied by an affidavit in support of the application outlining the reason why the application should be approved.
It is important to remember that the examiner is only permitted to question the person in question on “examinable affairs” which includes:
- The formation, promotion, management, administration or winding up of the corporation; or
- The affairs of the corporation; or
- The business affairs of a connected entity of the corporation when they are relevant to either of the former points.
What does the recent case tell us?
In the case of Arrium v Walton, a group of shareholders sought to use the examination process to determine whether a claim could be brought again Arrium due to $754 million capital rising undertaken in 2014.
The primary judge found the predominant purpose of the examination was to investigate and pursue a claim as shareholders and dismissed the application.
Recently, the New South Wales Supreme Court upheld this judgement finding the purpose was private rather than public as the prospective litigation would not bring any commercial benefit to the company.
This case reaffirms the principle that summons lodged for private purposes will be unlikely to be allowed, even where there is benefit to the liquidator.
If you have received a summons under the public examination regime, it is important you comply, unless you have applied for the order to be set aside for which time limits apply, and seek legal advice.