The first part of this article considered why liquidators and trustees would wish to hold public examinations, their obligations to conduct investigations and the alternate methods of getting information from people. It is clear that liquidators and trustees often must try to find a hidden truth, and some of the methods available to them do not provide the necessary force to get that truth. Public examinations have some significant advantages.
Public examinations are held in a court. Immediately the witness (the person being examined) is in a room designed to find the truth. They sit in a court of law, with a Judge or Magistrate or Registrar, a bailiff, a witness box and most of the rules and protocols of the legal system. Very few witnesses fail to be intimidated by this setting. They are then placed under oath and warned of the consequences of perjury. This setting gives an immediate tactical advantage to the liquidator or trustee.
Both Acts allow examinations in a court. The Bankruptcy Act has section 81 providing for an examination of the bankrupt and “examinable persons”. Examinable persons include directors of associated entities, spouses of the bankrupt, people in possession of records (including accountants and solicitors) creditors of the bankrupt and debtors of the bankrupt. Essentially, anyone that has advised or dealt with the bankrupt may be able to be examined.
The Corporations Act has two sections. Section 596A provides for mandatory examinations of past and present officers of a company. Officers include directors and secretaries, people that make decisions that affect the business or financial standing of the company, and people whose directions are acted upon by the directors. Mandatory means that an application for an examination must, in theory at least, be granted. Section 596B provides for discretionary examinations of people that have taken part in the examinable affairs of the company and, more widely, people that may be able to provide information about these examinable affairs. Essentially to get such an order, the applicant for an examination order needs only convince the court that the proposed witness would be able to provide some relevant information.
Who can apply for an order for an examination?
Under the Bankruptcy Act, the Official Receiver, the Trustee, or any creditor with a provable debt may make an application. That means that any creditor may apply to the Federal Court to examine the bankrupt and other parties, and they do not need the approval of the trustee. In theory, the trustee cannot even interfere with the examination. The Corporations Act restricts the applicants to the Liquidator or Administrator etc, the ASIC, or a person authorized by the ASIC. A creditor may still be able to make an application, as long as they have been authorized by the ASIC to do so. Who will the ASIC authorize? They have granted authority to Receivers and Managers (who do not have a statutory right under their provisions), creditors, regulatory authorities and trustees of related trusts.
Next month we will look at who may take part in examinations, and what questions may be asked. There are a few surprises.