The Corporations Act 2001 (Cth) (Act) enables, among others, insolvency practitioners to apply to the Court for the issuing of a summons compelling a person to attend court to be examined on oath about the “examinable affairs” of the relevant company, as well as ancillary orders requiring production of documents.
The decision in Secatore, in the matter of Last Lap Pty Ltd (in liq) (No 3)  FCA 1289 considered the concept of “examinable affairs” and the matters the Court will have regard to when considering an application to set aside a summons.
The liquidator of Last Lap Pty Ltd (Company) successfully applied to the Federal Court of Australia for the issuing of summonses for examination to Rodney Jane (Applicant) and other third parties, including former liquidators of the Company. The relevant summonses for examination were issued pursuant to section 596A of the Act (i.e. a mandatory examination) and section 596B of the Act (i.e. a discretionary examination).
- The documents sought to be produced and the matters on which the liquidator intended to examine the relevant examinee went beyond the “examinable affairs” of the Company; and
- The affidavit relied upon by the liquidator in applying for the issuing of the relevant summonses contained “serious and material non disclosures” and, therefore, all of the summonses were “infected” by the non disclosure.
In support of his position, the Applicant submitted that:
- The Registrar who issued the summonses was not taken to certain correspondence sent to the liquidator by the Applicant’s solicitor and was not made aware of the fact a real and substantive dispute existed about the legal and beneficial ownership of certain shares, and the limits this may have had on the examinable affairs of the Company.
- The liquidator’s affidavit failed to draw attention to the fact that a particular entity was not, and had never been, connected to the Company. The Applicant submitted that the Court did not have power to compel production or have questions answered in relation to the affairs of that particular company.
- Certain transactions, and the underlying documents sought, occurred approximately 11 years prior and any action arising from these transactions would likely be statute barred. In this respect, the Applicant submitted that the liquidator should have informed the Court of the utility of conducting the examinations.
Pursuant to section 569A of the Act, the Court must summons a person to be examined about a corporation’s examinable affairs if it is satisfied of the two relevant matters in that section, namely (a) that the person applying is an eligible applicant; and (b) the person to be summoned is an officer or provisional liquidator of the corporation or was an officer or provisional liquidator in the relevant 2 year period preceding (in the case of a liquidator) the liquidator’s deemed date of appointment.
In circumstances where the criteria in section 596A of the Act are met, the Court has no discretion to refuse the application of the eligible applicant (see Kimberley Diamonds Ltd v Arnautovic  FCAFC 91).
Discretionary examinations and ability to give information about “examinable affairs”
Pursuant to section 596B of the Act, the Court has discretion to summons a person to be examined about the corporation’s affairs where (a) the application is being made by an eligible applicant; and (b) the Court is satisfied that the person to be summoned:
- has taken part or been concerned in the examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or
- may be able to give information about examinable affairs of the corporation.
The threshold for establishing that a person may be able to give information about examinable affairs of the corporation is not a high one.
The “examinable affairs” of a company
Section 53 of the Act contains a non-exhaustive list of the affairs of the corporation for which the concept of “examinable affairs” relates, including:
- the promotion, formation, membership, control, business, trading, transactions, and dealings;
- in the case of a company that acts as trustee of a trust, matters concerned with the ascertainment of the beneficiaries of the trust;
- the internal management of the company;
- any act or thing done when the company was subject to some form of external administration;
- the ownership of shares in, debentures of, and interest in managed investment schemes available to the company;
- the power of persons to exercise or control the right to vote attached to shares of the company;
- matters concerned with the ascertainment of the persons who have been financially interested in the success or failure of the company.
In Cunningham, in the matter of Australasian Liquid Storage Pty Ltd (in liq)  FCA 559 the Court defined “examinable affairs” to include “information about” an event occurring in the “business, trading, transactions and dealings” of the relevant company.
The general principles relating to a liquidator’s disclosure obligation can be found Re Southern Equities Corp Ltd (in liq), Re; Bond & Caboche v England (1997) 25 ACSR 394 where Lander J stated:
“there is a heavy obligation upon the person applying for the examination summons to make full and frank disclosure of all matters which may impact upon the decision to summon a person for examination about a corporation’s examinable affairs…
A person who makes an application of this kind is under an obligation to bring all facts and material to the court’s attention which might bear upon the order to be made…
The applicant has no lesser obligation than that imposed upon a party seeking an injunction ex parte”
The obligations of frankness and candour is said to be greater in such applications as the material upon which the application is being made (i.e. the supporting confidential affidavit) will not be made available to the proposed examinees. The obligation therefore requires the applying party to put before the Court all material which might impact on the orders sought, including any material that may lead to the Court refusing the application.
The Court’s consideration of the issues
Having been satisfied of the two criteria in section 596A of the Act, namely that those particular examinees were former liquidators of the relevant company in the two year period prior to incumbent liquidator’s appointment, the Court rejected this part of the application (noting it did not need to resolve the issue of whether or not the Applicant had standing to bring the application).
The Court emphasised that the eligible applicant for a discretionary examination summonses only needs to demonstrate that the proposed examinee “may be able to give information about examinable affairs of the corporation” and was not required to establish that the prospective examinees could provide such information.
The Applicant’s argument that he was only 18 years old at the time the events the subject of various documents sought in the summons occurred and therefore there was no reasonable hypothesis or scenario that he could have relevant information of such events, was rejected. The Court noted some of these documents appeared to have been executed by the Applicant, the Applicant was the director of a corporate trustee involved in transactions entered into by the Company, and was a director of another company which was involved in acts or things done in relation to the Company at a time when it was in liquidation.
The Court rejected the application that the balance of summonses issued by the Court should not be set aside (noting it did not need to resolve the issue of whether or not the Applicant had standing to bring the application).
In dealing with the residual discretion under section 596B, the Court noted that discretion was “a wide one” and engaged where it would facilitate the inquiry into the company’s examinable affairs. In the circumstances, the Court was “satisfied that the examinations are justified, have practical utility and that it is a proper exercise of the Court’s discretion to issue the relevant summonses under section 596B. An assessment of the matters identified in the Liquidator’s affidavit indicates that there are legitimate issues which can be addressed by the examinations, and there is no indication that the Liquidator might be able to retrieve the relevant information by other means”.
In rejecting the Applicant’s submissions regarding non-disclosure, his Honour found as follows:
- The failure to draw the Court’s attention to the dispute regarding the ownership of shares was not a material non disclosure. The liquidator’s affidavit referred to his investigations based on the books and records of the Company and referred to and annexed the letter from the Applicant’s solicitor raising dispute with the ownership of the shares.
- Similarly, the complaint that letters from the Applicant’s solicitor were buried in a voluminous exhibit was also not accepted. The relevant letters appeared immediately following the draft summonses the Court was asked to issue (the exhibiting of which is a requirement under the relevant rules).
- The fact that the liquidator had not drawn the Court’s attention to the fact that one of the proposed producing parties was not related to the Company was not a material non disclosure. The Company had a “transaction or dealing with” that entity, which was enough to fall within the “examinable affairs” of the Company. In so far as there were questions about this entity which were not within the “examinable affairs” of the Company, this was a matter to be raised/objected to at the time of the relevant examination.
- The submission that some of the matters the subject of the examinations were, or may have been, statute barred was not sufficient grounds to discharge the summonses. It is not necessarily the case that summonses “can be discharged or stayed as an abuse of process simply because the Court cannot be satisfied, on the evidence then available, that there is a reasonable or realistic prospect that the end result of the process will be the disclosure of a viable claim against the examinee or another person”. The Court reiterated public examinations are an information gathering process.