Liquidators have an “as of right” ability to examine company officers (Mandatory examinations) under S596A of the Corporations Act. They can also apply to the Court to examine other parties (Discretionary examinations) under S596B of that Act. When applying for an examination of non company officers the liquidator must file a confidential affidavit which sets out why the examination is necessary and which discloses all relevant facts.
The ability of liquidators to examine parties is one of the strongest weapons which a liquidator can wield in his or her efforts to establish facts regarding the history of the company in liquidation. In holding public examinations the liquidator can require the production of documents, is not bound by the rules of evidence, and can even require parties to respond even if the response tends to incriminate them.
Frequently liquidators will conduct examinations aimed at eliciting facts and admissions which may greatly assist with contemplated litigation.
In general terms, an examination conducted in support of contemplated litigation is a proper use of the liquidator’s powers. However, the same cannot necessarily be said of an examination designed to support litigation which is already underway, and this is particularly so if the examinee has not been an officer of the company.
It is not unusual for one or more creditors to fund a liquidator to conduct an examination. The fact that a liquidator’s examination is funded by a single creditor or may advance the interests of a creditor who has instituted proceedings against an examinee does not give rise to an improper purpose or abuse of process, provided that advancing those interests will also advance the company’s interest (Re Clutha Ltd).
Where a proposed examinee believes that an examination is to be conducted for an improper purpose he or she may apply to the Court to set aside the summons. In such circumstances the Court will closely look at the confidential affidavit filed by the liquidator in support of the examination. For this reason, and for reasons of procedural fairness, it is essential that the liquidator’s affidavit disclose all relevant facts. Indeed a good rule of thumb is that if a liquidator is not sure whether to include or exclude any information the better approach is to include it.