We have recently written a number of articles on public examinations discussing the process to commence an examination and the benefits of questioning witnesses in Court as opposed to using some of the other fact-finding tools available under the Acts. These articles can be found on our website. Both the Bankruptcy Act and the Corporations Act have examination provisions, but they differ in various areas.
One of those areas is in who may apply for an examination. The Bankruptcy Act allows the trustee of the estate, the Official Receiver or any creditor (termed a person with a provable debt) to make the application. The Corporation Act allows ‘eligible applicants’ – ASIC, an external administrator, or person authorized in writing by ASIC – to make such applications.
All of these parties are easily identifiable, except ‘person authorized in writing by ASIC’. ASIC has granted eligible applicant status to Receivers and Managers, creditors, regulatory authorities and trustees of related trusts. But who may request written authority from ASIC and what do ASIC and the courts consider?
The process has two stages. The first stage is the authorization of the party by ASIC to make the application to the Court. ASIC considers the connection between the person wanting to hold the examination and the company, the persons they want to examine, and considers the reasons for the examination. Essentially ASIC considers the appropriateness of that person being given standing to apply to the Court.
ASIC will only authorize a person if the purpose of the examination is for the benefit of the company, its shareholders or its creditors. The examination cannot be for an improper purpose, like a dress rehearsal for a cross-examination in other proceedings.
Authorization by ASIC does no more than authorize that party to make an application for an order. The second stage is that application. The applicant will have to convince the court that the examination falls within the examinable affairs of the company and that the potential examinees will be able to provide evidence on those examinable affairs. That is, it is not a forgone conclusion that the court will grant an order for an examination simply because the applicant is or becomes an eligible applicant (except if the order sought is for the examination of a director or officer of the company – section 596A).
The court will also consider the purpose of the examination and not allow an examination to be used as a dress rehearsal for cross-examination or for another improper purpose.
This two step process is rarely used. In most cases the external administrator or ASIC will apply for any order necessary to promote investigations.