TGIF 15 May 2026 – Court of Appeal confirms high threshold for discharging examination summonses

This week's TGIF considers Rosenberg v Can’t Escape Karma Pty Ltd [No 2] [2026] WASCA 50. In this case, the Western Australian Court of Appeal (the Court) unanimously refused an appeal of a decision to dismiss an application to discharge examination summonses on the basis that they constituted an abuse of process and were obtained in contravention of the duty to make ‘full and frank disclosure’.

The decision is a timely reminder to examinees that they will typically face significant legal and evidentiary difficulties when seeking to discharge examination summonses issued under section 596B of the Corporations Act 2001 (Cth) (Act) as an abuse of process. The decision also illustrates that, in circumstances where an examination summons is obtained by a special purpose entity registered for the purpose of taking assignment of and pursuing a claim, the summons will not constitute an abuse of process because the entity stands to receive the majority of any recovery proceeds (as opposed to the creditors of the liquidated company).

Key takeaways

• The threshold for discharging an examination summons as an abuse of process on the basis that the summons is of no practical use is extremely high.  Where the purpose of the summons is to investigate a potential claim, the summons will be an abuse of process where the potential claim underlying the examination is "so speculative, far-fetched or misconceived that it ought to be characterised as clearly doomed to fail or plainly unsustainable”.  Anything less will not suffice to establish an abuse of process – provided there is a “plausible contention that requires investigation”, the summons does not lack practical utility.
   
• An examination summons will not be discharged as an abuse of process just because a private entity stands to receive the majority of any recovery proceeds. The Court confirmed a purpose-built entity, which took an assignment of a claim under a recovery proceeds-sharing arrangement with the liquidator, can legitimately wield the examination power under section 596B. The Court found the predominant purpose of the summonses was to investigate potential corporate misconduct and pursue recovery proceedings for the benefit of a private entity and the company’s creditors. The fact that the recovery proceeds were to be distributed in accordance with a 90:10 sharing regime did not mean the summonses were obtained for an improper purpose and constituted an abuse of process.
   
• Full and frank disclosure – materiality depends on capacity to affect the decision.  Given that applications for examination summonses are typically sought on an ex parte basis, the applicant is subject to the ‘heavy’ obligation to make ‘full and frank disclosure’ of all matters which may impact on the decision to summon a person for examination. Accordingly, a summons will be discharged where there has been non-disclosure of a material matter that is ‘capable of affecting’ the decision to issue the summons. However, where the undisclosed matter relates to an argument that is itself without merit, the non-disclosure will not be material because there is no realistic possibility the outcome would have been different. 

Background

Atari Enterprises Pty Ltd (the Company) appointed a voluntary administrator on 1 November 2023, and subsequently entered creditors' voluntary liquidation on 4 December 2023. On the same date the administrator was appointed, the Company executed a Restructure Deed and a General Security Deed with the Third Appellant, Gleneagle Securities Nominees Pty Ltd (Gleneagle) and Rampage Nominees Pty Ltd (a company incorporated that same day, directed by the Second Appellant, Mr Shellim). The Restructure Deed purported to transfer the whole of the Company's assets – including shares in a subsidiary, intellectual property rights, and an intercompany debt of approximately $4.5 million – to Rampage (as Gleneagle's nominee) for $330,000 in consideration for a reduction of an alleged debt owed to Gleneagle. A family trust associated with the Company's sole director, Mr Douglas, held a 75% beneficial interest in Rampage's shares. 

The Respondent, Can't Escape Karma Pty Ltd (CEKPL), was incorporated in 2024 as a purpose-built vehicle. It took an assignment of the Company's claims from the liquidator for $20,000, subject to a recovery proceeds-sharing regime (10% of net proceeds exceeding $50,000 to be paid to the liquidator for distribution to creditors). CEKPL obtained ASIC authorisation as an ‘eligible applicant’ to apply for examination summonses under section 596B. 

On 3 October 2024, orders were made for the issue of examination summonses directed to the first appellant, Mr Rosenberg (sole director of Gleneagle), and Mr Shellim, together with a direction for Gleneagle to produce documents under section 597(9). The appellants applied to discharge the summonses on the basis that they constituted an abuse of process (as they had no practical use, were obtained for an improper purpose and were oppressive) and that there had been material non-disclosure in contravention of CEKPL’s obligation to provide full and frank disclosure to the Court. Howard J dismissed those applications in the first instance. The appellants then sought leave to appeal. 

The key issues on appeal

The Court was required to determine (amongst other things) whether: 

• the examination summonses should be discharged as an abuse of process on the basis that they were misconceived, lacked utility, oppressive and vexatious, or issued for an improper purpose; and
   
• the summonses should be discharged for non-compliance with the obligation of full and frank disclosure on the ex parte application.

The Court’s findings

Inutility – the ‘clearly doomed to fail’ standard

The Court held that a lack of practical utility is not a stand-alone ground for discharge in the context of an application to discharge a summons as an abuse of process – that is, inutility of the summons is relevant only insofar as it may ground a finding of abuse of process.

Critically, the Court synthesised principles from Kimberley Diamonds Ltd v Arnautovic and Walton v ACN 004 410 833 Ltd (in liq) (Walton) to articulate the applicable standard: inutility will amount to an abuse of process only where the potential claim relied upon to justify the summons is "so speculative, far-fetched or misconceived that it ought to be characterised as clearly doomed to fail or plainly unsustainable”.  The Court emphasised that provided there is "a plausible contention that requires investigation”, there can be no abuse of process.

The appellants' central inutility argument rested on a 2018 Bond Agreement said to grant Gleneagle a security interest over the Company's assets. However, the security interest was never perfected under the Personal Property Securities Act 2009 (Cth) (PPSA) and, on the appellants' own concession, would have vested in the Company under section 267(2) of the PPSA immediately before the administrator's appointment. The Court found plausible contentions for investigation as to whether the Company's director breached his duties in causing the Company to enter into the transactions.

Improper purpose assessed by referring to ‘predominant purpose’

The appellants contended that CEKPL's predominant purpose was improperly to "line its own pockets”. The Court applied the framework from Walton, drawing the critical distinction between a litigant's "immediate purpose" (the means and ends adopted) and their "ultimate purpose" (motive). The Court held that CEKPL's predominant purpose – investigating potential corporate misconduct with a view to pursuing recovery proceedings under the proceeds-sharing regime – fell squarely within the scope of the examination power and was not an improper purpose.

This was so notwithstanding the fact that any recovery proceeds were subject to a 90:10 split in CEKPL's favour. That is, only 10% of the proceeds would be made available to the Company’s creditors. 

Non-disclosure – materiality assessed by reference to the merit of the underlying argument

The Court accepted that there was an "arguable non-disclosure" concerning the Bond Agreement. However, applying the test from Re Southern Equities Corporation Ltd (in liq); Bond & Caboche v England and Savcor Pty Ltd v Cathodic Protection International APS, the Court held that a matter is material only if it is "capable of affecting" the decision. Because the appellants' inutility contention was "so weak and so lacking in merit”, the Court found there was no realistic possibility a different outcome would have resulted from disclosure of the Bond Agreement. 

Comment

The Court’s decision will be of practical significance for insolvency practitioners and their advisers.

For liquidators and assignees, the decision indicates that purpose-built entities which take an assignment of claims and fund the investigation and prosecution of those claims under a proceeds-sharing arrangement with the liquidator can, with ASIC’s consent, properly wield the examination power. Provided that summonses obtained by these entities are for the purpose of investigating potential recoveries and/or corporate misconduct, the fact that it is a private entity who stands to receive the majority of any recovery proceeds (as opposed to the liquidator) will not mean the summons was issued for an improper purpose. This is particularly significant where insolvent estates lack the resources to conduct investigations – the Court expressly acknowledged that the Company lacked means to investigate or pursue proceedings itself. 

For directors and other examinees, the decision confirms challenging an examination summons remains an exceptionally difficult undertaking. Where the challenge is made on the basis the underlying claim is devoid of merit, the Court's articulation of the inutility threshold – "clearly doomed to fail or plainly unsustainable" – effectively forecloses all but the most clearcut cases. 

On the question of non-disclosure, those seeking examination summonses for the purpose of investigating a potential claim should bear in mind the duty to provide full and frank disclosure to a court will extend to the disclosure of matters that undermine the utility of the summons (for example, matters capable of affecting a court’s assessment of the merits of the potential claim).

The Court found non-disclosure of the Bond Agreement was not material, given the weakness of the appellants' contention that the examination summonses lacked utility. However, the Court noted a matter may still constitute a material non-disclosure even if it does not amount to an abuse of process.

Finally, insolvency practitioners and their advisors should also note the Court's emphasis on the investigative character of the examination power. The Court reiterated an eligible applicant need not demonstrate an arguable case or that the examination is likely to reveal conduct capable of supporting a claim – an examination "can reasonably be regarded as having some practical utility if it would obtain answers to otherwise unanswered questions”. This reaffirms the examination power as a broad-reaching investigative tool, not a preliminary step confined to situations where claims are already well-developed.