Examinee on the run – what to do when a director fails to appear

This week’s TGIF article considers the decision of Mensink v Parbery [2017] FCA 1248 and the options available to liquidators when a director fails to appear for examination, and when liquidators are faced with an appeal by a director who is unlikely to comply with adverse costs orders.

WHAT HAPPENED?

In May 2016, Stephen Parbery and Michael Owen (Liquidators) were appointed as special purpose liquidators of Queensland Nickel Pty Limited to, among other things, investigate dealings between Queensland Nickel and its related entities.

On application by the Liquidators, the Court issued a summons pursuant to s596A of the Corporations Act 2001 (Cth) to Clive Mensink, the former director and company secretary of Queensland Nickel, to be examined about the company’s affairs.

Mr Mensink swore an affidavit stating that he had embarked on a cruise overseas and then planned travel to Europe to spend time with family, and for these reasons, it was unreasonable for him to be required to attend the examination. Ultimately, Mr Mensink failed to appear for examination.

WHAT TO DO IF AN EXAMINEE FAILS TO ATTEND?

Upon his failure to appear, the Court made orders that Mr Mensink be required to attend for examination the following month, and that if he failed to appear, he would need to show cause why a warrant for his arrest should not be issued.

Given Mr Mensink’s claim in his affidavit that he would incur substantial costs if he was required to attend, the orders were made subject to a condition that the Liquidators pay for Mr Mensink’s return airfare from a port in Europe to be nominated by him.

Mr Mensink failed to attend Court for examination or to show cause why an arrest warrant should not be issued. He did not return to Australia, and his whereabouts are unknown both to the Liquidators and to his own lawyers.

Pursuant to rule 11.10 of the Corporations Rules, the Court may issue a warrant for the arrest of a person who is summoned or ordered to attend for examination, and without reasonable cause fails to attend.

The Court ordered that Mr Mensink be arrested and brought before the Court for examination, and subsequently ordered that a warrant be issued for Mr Mensink’s arrest and detention until he could be brought before the Court to answer a charge of contempt of Court.

APPEAL AND SECURITY FOR COSTS

Mr Mensink appealed the arrest warrant orders, and the Liquidators were named as respondents to that appeal. The Liquidators applied for security for costs for the appeal, on the basis that if costs orders were made against Mr Mensink in the appeal, there was a risk that such orders either may not be met, or may not be able to be readily enforced by the Liquidators.

Relevant to Wigney J’s granting of an order for security for costs were the following factors:

1. Mr Mensink is presently overseas and appears to have no apparent intention to return to Australia, at least while he faces the prospect of examination;

2. he appears to be content to ignore Court orders, and has deliberately made his whereabouts difficult to ascertain to anyone involved in the proceeding;

3. while Mr Mensink owns two properties in Australia, the equity in those properties is unknown. Even if he did have equity in the properties, it would be difficult, time consuming and costly for the Liquidators to enforce a costs order against them when Mr Mensink’s whereabouts is unknown; and

4. while the appeal concerned issues of liberty, it could be inferred that Mr Mensink would be able to comply with a security for costs order, as he was still receiving substantial fortnightly payments from Mineralogy, a company associated with his uncle, Mr Clive Palmer.

Ultimately, Wigney J considered there to be a real risk that Mr Mensink would not voluntarily comply with an adverse costs order made against him, and the Liquidators would have the “invidious” task of having to enforce the order when Mr Mensink’s whereabouts are unknown.

Wigney J posited that it is “difficult to see why the liquidators should be put to the considerable trouble and expense of seeking to enforce any adverse costs order… in circumstances where Mr Mensink continues to absent himself from the jurisdiction”. As such, an order for security for costs was considered appropriate.

COMMENT

Liquidators are commonly confronted by situations of directors refusing to appear for examinations, and by difficulties in ascertaining the whereabouts of, and enforcing costs orders against, such directors.

This decision demonstrates the steps that can be taken when an examinee fails to attend an examination. It also highlights the availability of security for costs as an option available to liquidators who may be faced with an appeal by an examinee director who is unlikely to comply with any adverse costs order, or against whom such an order may not be able to be readily enforced.