TGIF 02 July 2021 – Liquidator’s victory lap: Court refuses to dismiss examination summons issued to son of Bob Jane

This week’s TGIF considers a recent decision where a party summonsed under section 596B of the Corporations Act failed to convince the Full Federal Court that the summons sought information beyond the company’s ‘examinable affairs’.

Key takeaways 

• The Full Federal Court (the Court) has held that the power of the court to issue a summons for examination under section 596B of the Corporations Act 2001 (Cth) (the Act) is not preconditioned on the court being satisfied that the information sought by the applicant falls within the examinable affairs of the relevant corporation.
  
  
• The court’s function, when deciding whether to issue the summons, is not to determine the scope of the corporation’s examinable affairs.
  
  
• A court need only be satisfied that the person sought to be summonsed is a person who ‘may’ be able to give information ‘about’ examinable affairs of the corporation. This includes matters that appear to bear upon, relate to or arise from the ‘examinable affairs’ of a company.

Background

Last Lap Pty Ltd (in liq) (Last Lap) has been in liquidation for nearly 30 years. Bob Jane Corporation is one of two unsecured creditors of Last Lap. Last Lap’s liquidator, Mr Secatore, sought to publicly examine a number of persons in relation to their involvement with Last Lap.

Upon Mr Secatore’s application, a court registrar issued summonses pursuant to section 596B of the Act for the production of documents and examination of persons in relation to the ‘examinable affairs’ of Last Lap, including Rodney Jane, son of the late Bob Jane.

In 2020, Mr Jane succeeded in securing access to the liquidator’s confidential affidavit sworn in support of the application for the issue of the summonses (Liquidator’s Affidavit), on the basis that he had an arguable case that the issue of the summons to himself exceeded the power of the court under section 596B of the Act. Until that decision, access to that affidavit was limited to the liquidator and the court.

However, Mr Jane failed in his application to the court to have the summons set aside. Mr Jane sought to have the summons set aside on the basis that the liquidator was seeking to impermissibly stray beyond the ‘examinable affairs’ of Last Lap, and that the Liquidator’s Affidavit contained serious and material non-disclosures. At first instance, Justice Anderson was not persuaded that the matters intended for examination were not about the ‘examinable affairs’ of Last Lap, nor that any non-disclosures would cause the court to refuse to issue the summons.

Mr Jane sought leave to appeal this interlocutory decision to the Court.

Relevant law

Section 596B provides:

‘The Court may summon a person for examination about a corporation’s examinable affairs if:

1. an eligible applicant applies for the summons; and
   
   
2. the Court is satisfied that the person:

1. has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or
2. may be able to give information about examinable affairs of the corporation.’

An ‘eligible applicant’ includes a liquidator under section 9 of the Act.

The expression ‘examinable affairs’ is defined in section 9 of the Act, and ‘affairs’ further defined at section 53 of the Act. The Court commented that, read together, sections 9 and 53 prescribe a “very wide definition of ‘examinable affairs’”.

Appeal to the Court

On appeal, Mr Jane argued that a court must be satisfied that the issues the subject of a proposed examination and the documents to be produced fall within the ‘examinable affairs’ of a company before exercising the discretion to issue a summons under section 596B(1) of the Act. On this basis, it was argued that, as certain documents that Mr Jane was summonsed to produce were outside the scope of Last Lap’s ‘examinable affairs’, that summons ought to be set aside.

Mr Jane argued that the court registrar could not have been satisfied to the requisite standard because the liquidator had requested certain documents involving Bob Jane Properties in circumstances where there was an existing dispute as to whether the shares in that company were owned by Last Lap or another company called Mimulus. Mr Jane submitted that, if the shares were owned by Mimulus, the requested documents would not be relevant to Last Lap’s examinable affairs. Mr Jane further argued that these matters had not been properly disclosed in the Liquidator’s Affidavit.

Preconditions to the exercise of section 596B

The Court refused Mr Jane’s application for leave, commenting that Mr Jane’s reasoning proceeded on the misconception that the examination process cannot be used to investigate and ascertain whether something does, or does not, form part of the examinable affairs of a corporation. The question of whether Last Lap or Mimulus owned the shares in Bob Jane Properties was plainly a matter relevant to Last Lap’s examinable affairs.

While there must be some factual basis presented to the court by an applicant for a summons to enable the court to form a view that the applicant’s purpose relates to the ‘examinable affairs’ of a company, it is sufficient that only a relationship to the ‘examinable affairs’ of the company is shown. The court’s power to issue a summons does not depend upon an existence of facts to support that the examination will be on the ‘examinable affairs’ of a company; the court need only be satisfied that the proposed examinee is a person who ‘may’ be able to give information ‘about’ ‘examinable affairs’ of the corporation. This includes matters that appear to bear upon, relate to or arise from the ‘examinable affairs’ of a company. 

The Court commented that the very purpose of examination powers is to, among other things, assist an eligible applicant in the administration of a company, which includes determining the scope of the ‘examinable affairs’ of that company. It will therefore be for the court conducting the examination to decide whether a matter does or does not concern Last Lap’s examinable affairs.

The Court did allude to the possibility that it would be relevant to the exercise of the court’s discretion if an applicant was seeking to use the examination process for a collateral or ulterior purpose extraneous to a company’s examinable affairs. However, there was no suggestion that the liquidator had such a motivation in this case.

‘Material non-disclosure’

The Court held that the argument concerning material non-disclosure must fail, because the precondition for the exercise of the power under section 596B was satisfied on the material that was before the registrar.  The Court nevertheless found that, in any event, there had been no ‘material non-disclosure’ on the facts.

Takeaways

The Court’s decision affirms that eligible applicants may seek to issue summons in relation to a very wide scope of matters under the Act, and may use the examination process to determine whether certain matters are in fact part of the ‘examinable affairs’ of a company. 

Liquidators should be alive to the possibility that a confidential affidavit made in support of an application for the issue of a summons may be disclosed to the proposed examinee, and that the contents of the affidavit may provide grounds to resist the summons. The affidavit need only satisfy the threshold requirement that the examination will be on matters that appear to bear upon, relate to or arise from the ‘examinable affairs’ of a company.