The following article was published by Lexology on 13 May 2021:
An overview
Sections 596A and 596B of the Corporations Act 2001 (Cth) (the Corporations Act) provide the Court with the power to summon a person about a corporation’s examinable affairs.
The provisions may be used by liquidators (or other eligible applicants) to gather information about the affairs of a company to assist in winding up, including in relation to the assets and liabilities of a company, or to consider potential misconduct by officers of the company or any claims that may be advanced on behalf of creditors.
Pursuant to section 597(4) of the Corporations Act, an examination is to be held in public except to such extent (if any) as the Court considers that, by reason of special circumstances, it is desirable to hold the examination in private.
Who can apply for an examination?
The party applying to the Court for a summons to examine a person must be an eligible applicant, which in relation to a corporation, is defined in section 9 of the Corporations Act to mean:
- ASIC; or
- a liquidator or provisional liquidator of the corporation; or
- an administrator of the corporation; or
- an administrator of a deed of company arrangement executed by the corporation; or
- a restructuring practitioner for the corporation; or
- a restructuring practitioner for a restructuring plan made by the corporation; or
- a person authorised in writing by ASIC to make:
- applications under the Division of Part 5.9 in which the expression occurs; or
- such an application in relation to the corporation.
While it is beyond the scope of this article to consider all of the circumstances in which an authorisation will be granted by ASIC, a person’s connection to the corporation in question would clearly be a relevant factor.
Mandatory or discretionary?
Section 596A of the Corporations Act is expressed in mandatory terms. It requires the Court to summon a person for examination about a corporation’s examinable affairs if:
- an eligible applicant applies for the summons; and
- the Court is satisfied that the person is an officer or provisional liquidator of the corporation or was such an officer or provisional liquidator during or after the 2 years ending:
- if the corporation is under administration—on the section 513C day in relation to the administration; or
- if the corporation has executed a deed of company arrangement that has not yet terminated—on the section 513C day in relation to the administration that ended when the deed was executed; or
- if the corporation is under restructuring—on the section 513CA day in relation to the restructuring; or
- if the corporation has made a restructuring plan that has not yet terminated—on the section 513CA day in relation to the restructuring that ended when the plan was made; or
- if the corporation is being, or has been, wound up—when the winding up began; or
- otherwise—when the application is made.
As the expressions suggest, what constitutes a “section 513C day” and a “section 513CA day” are set out in section 513C and section 513CA of the Corporations Act respectively.
If the above threshold is satisfied, then the Court must issue a summons.
On the other hand, under section 596B of the Corporations Act, the Court has a discretion whether to issue a summons that is sought. That section provides that the Court may summon a person for examination about a corporation’s examinable affairs if:
- an eligible applicant applies for the summons; and
- the Court is satisfied that the person:
- 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
- may be able to give information about examinable affairs of the corporation.
The eligible person (also referred to as the “applicant”) will bear the onus of demonstrating to the Court that the discretion to issue the summons ought to be exercised.
A person who applies under section 596B must file an affidavit that supports the application and complies with the rules. The affidavit is not available for inspection except so far as the Court orders.
What are “examinable affairs”?
An examination can take place only in relation to the examinable affairs of the corporation. Pursuant to section 9 of the Corporations Act, examinable affairs in relation to a corporation means:
- the promotion, formation, management, administration, restructuring or winding up of the corporation; or
- any other affairs of the corporation (including anything that is included in the corporation‘s affairs because of section 53 of the Corporations Act); or
- the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation‘s examinable affairs because of paragraph (a) or (b).
For the purposes of the definition of examinable affairs in section 9 of the Corporations Act, matters that constitute the affairs of a body corporate are set out in section 53 of the Corporations Act.
What are formal requirements of a summons and is there an obligation on an examinee to attend?
A summons to a person under section 596A or 596B of the Corporations Act requires the person to attend before the Court:
- at a specified place and at a specified time on a specified day, being a place, time and day that are reasonable in the circumstances; and
- to be examined on oath about the corporation‘s examinable affairs.
A Court also has power to make orders for the production of documents. The documents must be relevant to matters to which the examination relates or will relate (section 597(9) of the Corporations Act) or relate to the corporation or to any of its examinable affairs (section 596D(2) of the Corporations Act).
A summons has been issued – what now?
Once a summons is issued, section 596E of the Corporations Act requires the person who applied for the summons to give written notice of the examination to:
- as many of the corporation‘s creditors as reasonably practicable; and
- each eligible applicant in relation to the corporation, except:
A summons is required to be served personally on the examinee.
Section 596F of the Corporations Act concerns the directions that a Court may give about examinations. There are many directions a Court can give, including a direction about the matters to be inquired into at an examination, a direction about the procedure to be followed at an examination, and directions about who may be present at, or excluded from, an examination.
It is an offence to contravene a direction of the Court.
Can a summons for examination be set aside?
In short, the answer is yes.
A summons may be set aside if it was issued for an improper purpose. A summons issued for an improper purpose is an abuse of process.
Rule 11.5 of the Federal Court Rules provides that within 3 days after the person is served with the examination summons, the person may apply to the Court for an order discharging the summons.
It follows that any application seeking to set aside a summons is time critical. The application must be supported by an affidavit setting out the facts in support of the application.
The critical question in setting aside a summons is whether the purpose of the examination is foreign to the purpose for which the examination powers were conferred. It has been held that an examination which is for a private purpose and for the benefit of only a small number of persons (and where it could not be said that that fulfilment of the purpose could confer a demonstrable benefit on the company or its creditors and possibly on all of its contributories) is foreign to the purpose for which the examination power is conferred and is an abuse of process: see ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) v Michael Thomas Walton [2020] NSWCA 157.
Other improper purposes include:
- using the examination procedure as a “dress rehearsal” for cross-examination in other proceedings;
- to destroy the credibility of witnesses who might be called to give evidence in separate proceedings; or
- to obtain a forensic advantage that would not have been available in other proceedings.
If you are an eligible applicant and you intend to apply for a summons, it is important to consider, in advance of applying, the purpose for which the summons is to be sought. While a person applying to set aside a summons bears the onus of proving that the summons was issued for an improper purpose, from the perspective of the requesting party, it is not desirable to become embroiled in a dispute concerning whether the summons is an abuse of process.
On the other side of the coin, if you have received a summons for an examination, the matters for consideration will likely include whether an application may be made seeking to have the summons set aside.
Is there anything else I should know?
The relevant provisions are set out in Part 5.9 of the Corporations Act. While the below is not an exhaustive list, you should be aware of the following:
- ASIC, or any other eligible applicant in relation to the corporation, may take part in the examination and they may be represented by a lawyer for that purpose (section 597(5A)).
- A person who is summoned under section 596A or 596B to attend before the Court must not intentionally or recklessly fail to attend as required by the summons or fail to attend from day to day until the conclusion of the examination (section 597(6) of the Corporations Act).
- A person who attends before the Court for examination must not:
- without reasonable excuse, refuse or fail to take an oath or make an affirmation (section 597(7)(a)); or
- without reasonable excuse, refuse or fail to answer a question that the Court directs them to answer (section 597(7)(b)); or
- make a statement that is false or misleading in a material particular (section 597(7)(c)); or
- without reasonable excuse, refuse or fail to produce booksthat the summons requires him or her to produce (section 597(7)(d)).
- A person is not excused from answering a question put to them at an examination on the ground that the answer might tend to incriminate the person or make the person liable to a penalty (section 597(12) of the Corporations Act).
- That said, under section 597(12A), where:
the answer is not admissible in evidence against the person in a criminal proceeding or a proceeding for the imposition of a penalty other than a proceeding under that section, or any other proceeding in respect of the falsity of the answer.
- In order to retain the privilege against self-incrimination it has therefore become common practice for an examinee to say the word “privilege” prior to providing any answer.
- The Court may order the questions put to a person and the answers given by that person at an examination to be recorded in writing and may require them to sign that written record (section 597(13)).
- Subject to the privilege against self-incrimination, any written record of an examination so signed by a person may be used in evidence in any legal proceedings against them (section 597(14)).
- A person ordered to attend before the Court or for examination may, at their own expense, employ a solicitor, or a solicitor and counsel, and the solicitor or counsel, as the case may be, may put to the person such questions as the Court considers just for the purpose of enabling the person to explain or qualify any answers or evidence given by the person (section 597(16) of the Corporations Act).
An examination is a powerful weapon that can be used (including by a liquidator, administrator or ASIC) to establish facts which may give rise to subsequent litigation. It is important that any recipient of a summons for examination understands the process involved, including the need to act quickly if there are grounds for an application to have the summons set aside.
