Examinee (still) on the Run — Clarifying how liquidators can apply for arrest warrants to require directors to appear

This week’s TGIF considers the process that a liquidator may follow when a director fails to attend at an examination. It considers the appeal in Mensink v Parbery [2018] FCAFC 101, in which the Court set out the relevant differences between arrest warrants issued to require a director to attend an examination, and arrest warrants to answer charges for contempt.

What happened?

Mr Clive Mensink was the sole director of Queensland Nickel Pty Ltd when it entered liquidation in 2016.

That same year, Stephen Parbery and Michael Owen were appointed special purpose liquidators of Queensland Nickel. They applied for an examination summons under section 596A of the Corporations Act, requiring Mr Mensink to appear to be examined about the company’s affairs.

After Mr Mensink failed to attend the examination on two occasions, a Judge issued two arrest warrants — the first to secure Mr Mensink’s appearance at an examination, and the second to have Mr Mensink attend court to answer charges for contempt.

In a previous TGIF (“Examinee on the Run — What to do when a director fails to appear"), we considered Justice Wigney’s decision to order that Mr Mensink provide security for the costs before his appeal could be heard.

In dismissing the appeal, the full Federal Court gave further guidance about a liquidator’s options when a director fails to attend an examination.

What can a liquidator do when a director fails to appear?

Securing an arrest warrant for a failure to attend as required by the examination summons

If a director fails to attend an examination, the liquidator may apply to the Court under Rule 11.10 of the Federal Court (Corporations) Rules (Corporations Rules) to have an warrant issued to have the director arrested and brought before the Court for the examination.

In this case, there was argument about whether it was necessary for the liquidators to prove that the examination summons or the Court’s orders had been served on Mr Mensink before the arrest warrant could be issued. Mr Mensink had left Australia soon after the examination summons was issued, and intended to continue a cruise and a holiday to Europe before returning.

Justice Wigney considered that the better view is that where an examinee fails to attend court for an examination, no more will be required for an arrest warrant to be issued pursuant to Rule 11.10.

However, his Honour considered that whether or not the examination summons or court order had been brought to the director’s attention would be relevant to their having a reasonable excuse for not attending the examination.

Separately, the Court concluded that the power to issue an arrest warrant under Rule 11.10 of the Corporations Rules was independent of the Federal Court Rules 2011 (Cth) (FCR), so that the general requirements relating to enforcement procedures in Part 41 of the FCR did not apply.

Securing an arrest warrant for contempt of court

The Court made clear that the issue of an arrest warrant to deal with this kind of alleged contempt is governed by different principles to one issued because of a director’s failure to attend as required by an examination summons.

Mr Mensink argued that the second arrest warrant should not have been issued because he was not present when the Court’s orders were made, and had not been served with or notified of them in accordance with the FCR.

Justice Wigney considered that the power to issue an arrest warrant for contempt under Rule 42.14 of the FCR only required an application for punishment of the alleged contempt to have been filed. It did not require that the liquidators prove a prima facie case or the Court consider the relative strengths and weaknesses of the case against the director.

His Honour did note, though, that the Court may refuse to issue a warrant where the application is demonstrably defective, bad in form or hopeless.

Conclusion

The Full Court of the Federal Court has confirmed that where a director fails to attend an examination, liquidators will be able to apply for and secure an arrest warrant requiring the director to attend.

Liquidators may also, if the Court has previously made orders requiring the director’s attendance, secure an arrest warrant on an application that the director be held in contempt. The principles governing this kind of arrest warrant are different from those which apply to arrest warrants issued in relation to examination warrants.

Those differences matter, and liquidators should be mindful of them in seeking arrest warrants to require a director to attend an examination or answer contempt charges.