Liquidators' power to obtain documents confirmed

1 October 2015

The Federal Court has dispelled all doubt about the ability of liquidators to obtain documents relevant to the examinable affairs of a company in liquidation in advance of the first day of actual examinations.

Previously, some practitioners have maintained that the Federal Court either lacked the power to make orders for production in aid of the examination power and/or could not require the production of material that would not actually be used to ask questions at the proposed examination.

Justice Markovic has confirmed that the Federal Court’s power under rule 30.34 of the Federal Court Rules 2011 to issue an order for production, when exercised in connection with orders for examinations under sections 596A and 596B of the Corporations Act 2001, is not restricted in the scope of documents that can be sought, provided they relate to the examinable affairs of the company and any other limitation in the scope of the examinations provided by the relevant summons.

The decision gives liquidators and other eligible applicants conducting public examinations confidence about both the scope and timing of the production of documents in advance of the examination itself. Practically, it removes any concern that when commencing public examinations in the Federal Court, orders for production could only be returnable on the first day of the examination itself; now it is clear that documents can be produced under an order for production issued by the Federal Court ahead of the actual public examinations, which will ultimately assist in the efficient management of the process.

Dispute

The Federal Court granted leave to issue orders for production to six related entities (the Companies) of Bruck Textile Technologies Pty Ltd (in liquidation) (Bruck), as well as summons for attendance and production of documents by two of Bruck’s directors (the Directors).

The liquidators of Bruck wished to investigate the sale of the business of Bruck to a related entity for nominal consideration, a transaction which left Bruck with significant liabilities for employee entitlements and without any assets or means of generating income to pay for them. Bruck went into liquidation the day after this sale.

Broadly, the orders to the Companies and Directors sought documents referring to or recording the financial position of the Companies and the Directors, and information regarding transactions between Bruck and the Companies.

The Companies and the Directors filed an interlocutory application seeking to set aside the orders for production issued to the Companies and the summons issued to the Directors to the extent they sought the production of documents.

The Companies’ central argument was that a distinction exists between the material that can be sought pursuant to  an “examination summons issued under the Act and what can be sought in an order for production issued under the Rules.”1

In particular the applicants argued that the Federal Court’s power to make orders for production under rule 30.34 was limited to orders ancillary to an examination, that is, they must be directed to a particular examination and the topics which will be the subject of examination. The effect of this argument would be that unless a liquidator knew specifically what questions were to be asked, no production could be required in advance of the first day of examinations.

The applicants in making this submission relied on Re BPTC Ltd (No 5) (1993) 10 ACSR 756, in which extensive orders for production issued to a third party for documents going back some 30 years with only a tenuous connection to the examinable affairs of a company were set aside.

The applicants also made a number of secondary submissions including the propositions that:

  • if a category of production encompassed privileged material, unless there was a specific carve-out excluding privileged material from the category, the whole category is beyond the power of the Court to make;
  • information concerning the historical financial position of potential defendants is beyond the scope of examinable affairs; and
  • various types of related party dealings fall outside the scope of the examinable affairs of a company in liquidation.

There was also some suggestion that orders for production issued to third parties should be made on notice, but this point was not pursued at hearing.

Decision

Justice Markovic rejected the Companies’ argument that there was any distinction between material which can be required to be produced pursuant to section 596D of the Corporations Act and material which can be required to be produced pursuant to the Court’s power to make orders for production under rule 30.34.

After considering Re BPTC (No 5), her Honour accepted the interpretation of the scope of the power to make orders for production articulated by Davies J in Re Bill Express Ltd (in liq) (2010) 238 FLR 329. The effect of the decision in Re BPTC (No 5) is that an order for production may only seek documents for the purpose of an examination, which will be defined by the relevant section of the Corporations Act and any limitation imposed by the examination orders themselves. In this case, where the summons for examination sought to examine the directors about the “examinable affairs” of Bruck, a document related to the “examinable affairs” is within the scope of the purpose of the examinations. ABC Learning Centres Ltd; Application by Walker (No 11) (2012) 87 ACSR 106 was also held not to differ from the approach by Davies J in Re Bill Express.

The suggestion that Re BPTC (No 5) requires the topics of an examination and the questions proposed to be asked to establish that documents sought under an order for production are for the purpose of an examination was rejected. Justice Markovic stated:

There is no suggestion in Re BPTC (No 5) that in order to establish that the documents sought are for the purpose of an examination it is necessary for the topics of examination and the questions to be asked to be known prior to the issue of the orders for production. I am of the view that the requirements of orders for production issued under r 30.34 of the Rules do not relevantly differ from the requirements of a summons for examination which also seeks production of documents. Such a distinction would lead to the awkward situation of the exercise of power to order production of documents under the Rules being constrained in a way that is not envisaged by the sections of the Act ancillary to which the power is exercised and in relation to which the power is called in aid.2

Her Honour also rejected an argument that the situation was similar to that in Onefone Australia Pty Ltd v One.Tel Ltd [2007] NSWSC 1188, where orders for production issued by special purpose liquidators were set aside, as the examinations to which they were supposedly ancillary to were yet to be “re-activated” through the issuance of further summons for examination. In this case, examination summons had been issued and the liquidators of Bruck had put on evidence outlining various transactions that they wished to investigate.

In respect of the summons issued to the Directors, the Court accepted that documents going to a potential defendant’s financial position from a period from 1 January 2012 to the date of the issuance of the summons, and therefore their ability to meet any judgment debt could be sought pursuant to an examination summons. The Court rejected an argument that only the most recent or current financial documents are within the scope of examinable affairs of a company.

In respect of the claim that the summons would capture legally privileged material, with no evidence before the Court of the extent of the issue, the Court could not accept the submission that the summons should be set aside on this ground and instead granted liberty to apply to the parties to resolve any contested privilege claims.

The only relevant consideration as to whether an order for production issued under rule 30.34 is valid in respect of the scope of documents sought is whether they relate to the “examinable affairs” of the company under investigation, and any further restrictions in the scope of the summons of examinations to which the orders are connected.

1 [2015] FCA 1051, [64]
2 [2015] FCA 1051, [73]

Scott Atkins

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Scott Atkins Partner

Scott is a trusted adviser to Australia's leading banks and insolvency and restructuring practitioners and has acted on some of the industry's most complex and sensitive banking and insolvency advisory and dispute resolution matters.

Prior to joining HDY, Scott practiced for 7 years as in-house counsel with Commonwealth Bank Group. He is now our Client Relationship Partner for the CBA Group. He is also the co-leader of our cross-border insolvency practice and our regulatory enforcement practice. Scott is recognised by his peers for his leading expertise in cross-border insolvency, acting on both inbound engagements in Australia and advising Australian clients on outbound engagements in the USA, UK, Cayman Islands, Hong Kong and The Netherlands, among other jurisdictions.

Scott was the Australian delegate on the Advisory Committee on Comparative Law established by the American Bankruptcy Institute as part of its Commission to Study the Reform of Chapter 11 of the US Bankruptcy Code. This resulted in a landmark report for the reform of Chapter 11.

He is a published author on insolvency and cross-border insolvency. Most recently, Scott was one of the Australian contributors to the 2015 publication 'International Contributions to the reform of Chapter 11 U.S. bankruptcy code' which is volume 2 of the European and International Insolvency Law Studies series. He also authored the Australian chapter of Avoidance of Antecedent Transactions and Cross-Border Insolvency (INSOL International). Among other publications, he is the co-author, together with Professor Rosalind Mason, of the Australian chapter of Look Chan Ho's leading text: Cross-Border Insolvency: Cases and Materials (Kluwer International).

Scott is a visiting lecturer on cross-border insolvency at the University of Sydney in its undergraduate and postgraduate law programs lead by Professor John Stumbles.

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Craig Ensor Partner

Craig has advised Australia's leading banks on numerous corporate collapses, and has acted for voluntary administrators, liquidators, provisional liquidators and receivers and managers in many high-profile corporate insolvencies.

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John is a recognised authority on insolvency issues, with articles published in media outlets such as The Australian Financial Review and the Insolvency Law Journal. He has presented at numerous domestic conferences as well as internationally in the US, England, South Africa, Singapore, Canada, New Zealand, and the Netherlands.

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Michael acts for a range of major clients including financial institutions, creditors, large corporations and professional trustees.

His focus is on contentious restructuring and re-organisation matters and corporate litigation. Michael's expertise across corporate insolvency law, banking and securities law and restructuring has seen him work on complex litigation and investigations arising out of the collapse of major corporate groups. Our clients also call upon Michael to counsel on cross-border insolvency law and restructuring matters.

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