“An Under-Utilized Resource”
The name of the article gives a good indication of our views. Public Examinations are a very useful tool in insolvency administrations, they have many benefits, few drawbacks and we believe should be used more often.
Why? People are economical with the truth when dealing with liquidators and trustees. They lie about:
- the existence and ownership of assets;
- the location of the books and records;
- what their income is;
- the reasons and their knowledge of insolvency;
- the extent of their liabilities;
- lots of other stuff.
Often public examinations are the best forum to find the truth. Before we get into the details of why public examinations are under-utilized, it is useful to use part one of this article to provide some background.
Both Trustees and Liquidators have a duty to investigate insolvent entities, but that duty varies greatly between the two Acts. Trustees must comply with sections 19 and 19A of the Bankruptcy Act. Liquidators have more limited statutory duties to investigate, and administrators only must do so in the context of the voluntary administration appointment.
Also there is a practical need to investigate in nearly all cases to find assets, verify claims, discover offences and provide some sense of resolution to creditors. Some part of any such investigation is getting information from someone.
There are a few alternatives to holding an examination. You can: simply rely on the records available; hold formal interviews; issue 77A notices and hold 77C interviews (both limited to bankruptcies); obtain search warrants; or obtain orders for people to provide affidavits on certain issues (section 597A of the Corporations Act). Each of these has its uses, but all have limitations in scope and enforceability.
Next month we will look at the types of examinations possible under the two Acts, and some interesting factors that are not well known.