Liquidator's examinations – can they be held in private?

29 April 2019

A liquidator’s power of examination under the Corporations Act 2001 (Cth) (Act) – to question, under oath, the directors, officers and others involved with the company, and compel documents from them, about the company’s assets and other affairs – is a key tool in the investigation of the demise of the company, corporate misconduct and the determination of what assets and claims may be available to be recovered on behalf of creditors.

The default position under section 597(4) of the Act is that an examination is held in public unless the court considers that by reason of ‘special circumstances’ it is desirable to hold the examination in private. Unsurprisingly, an examinee that has been charged with a criminal offence, or apprehending that they may be so charged, may seek that their examination is held in private (or not at all) with restrictions on who may access the transcript of the examination. The reason given is that the examinee’s right to a fair trial may be prejudiced by the liquidator’s examination. That is an issue worthy of particular consideration in the current climate as we expect an increased number of insolvency recovery claims (in connection with which an examination may be a preliminary information-gathering exercise) to be pursued alongside criminal investigations and prosecutions given the ongoing focus on illegal phoenixing and matters arising out of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

A recent application for an examination to be held in private

A recent application for an examination to be held in private was decided by the Supreme Court of Western Australia in Robert Michael Kirman and William James Harris Joint and Several Liquidators of GH1 Pty Ltd (Receivers and Managers Appointed) (in liq) v Bazzo [2019] WASC 45 (GH1). In GH1, the examinee made an application for orders that the examination be conducted in private and ancillary orders concerning the examination transcript.

The examinee was the sole director of GH1 Pty Ltd (Receivers and Managers Appointed) (in liq), whose affairs were subject of investigation by the Australian Tax Office (along with a number of other related entities) as well as by its liquidators that were seeking to conduct the examination. Although the examinee had not been charged with any offence, the Court accepted the likelihood that the examinee may face significant charges arising out of the financial and trading affairs of GH1 Pty Ltd (Receivers and Managers Appointed) (in liq) and other related entities. The examinee asserted that ‘special circumstances’ arose from the prospect of being charged and the ‘accusatorial process’ in the criminal justice system, although the ‘special circumstances’ were not precisely defined.

The decision and reasoning

The application was unsuccessful because the examinee had not demonstrated ‘special circumstances’ for departing from the default position that an examination be held in public. His Honour’s judgment contains a detailed analysis and helpful summary of the authorities relevant to this issue.

In summary, his Honour accepted the need for the criminal justice system to ‘guard against the possibility that the witness will convict himself out of his own mouth1┬áis well entrenched. However, that is to be balanced against the clear legislative intention in s597(4) of the Act for an examination to prima facie be held in public to promote the public policy purpose of the examination enabling the liquidator to gather the information necessary to assist the liquidator in the winding up including the protection of the interests of creditors. Further, the relevant judicial officer presiding over the examination is empowered to give directions in the course of the examination dealing with any matters at the examination which could go some way to protecting against the scope of the examination becoming improper. For example, directions may be given to limit the line of questioning permitted by the liquidator or to prohibit publication or communication of evidence given at the examination.

In the GH1 case, the absence of precisely defined circumstances which could unfairly prejudice the examinee if the examination was conducted in public appears to have been fatal to the application.

Conclusion

Generally, it will be a rare case where a Court may be satisfied that ‘exceptional circumstances’ exist for an examination to be held in private. This is because of the clear intention under the Act for examinations by liquidators to be a public process and the protections afforded to examinees concerned that they may be prejudicing their defences of criminal charges brought against them or that they apprehend may be brought against them. In any case, if an application for an examination to be held in private is to succeed the ‘exceptional circumstances’ and the prejudice to the examinee should be precisely articulated.

We have assisted clients in relation to numerous public examinations. If you have any queries or need assistance in connection with public examinations, please contact a member of our team.

This article was written by Polat Siva, Partner and Neil Perl, Senior Associate.

Publication Editor: Grant Whatley

1In the words of Mason CJ in Hamilton v Oades (1989) 166 CLR 486, 496.

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