Many will be aware that Liquidators and Trustees have the power to conduct public examinations of any relevant person during the course of their investigations.
A public examination is one of the most powerful investigatory tools available to an insolvency practitioner, as it requires the examinee to attend court where they can be cross-examined on matters relating to the company or the bankrupt’s affairs. During the course of the public examination, the examinee is required to attend court to give evidence on oath and to produce any relevant books and records. The public examination process is primarily an information-gathering exercise. The information and documents provided may subsequently be used:
To assess and determine whether any potential claims are available;
To assess and determine the strength and likelihood of recovery of any claims; and
As evidence in any proceedings.
Although it is a very powerful tool, it can also be quite costly, as anyone who has dealt with any court and legal proceedings will be aware. In bankruptcy administrations, Trustees have a potentially more cost-effective and less onerous option to achieve a similar outcome, an examination by the Official Receiver under Section 77C of the Bankruptcy Act.
Under Section 77C, the Trustee may apply to the Official Receiver to issue a notice to the bankrupt or any other relevant persons, requiring them to do various things such as attend and give evidence verbally or in writing and produce books and records and other relevant documents. The examination will be presided over by the Official Receiver and is usually conducted at the office of the bankruptcy regulator, AFSA.
Any evidence provided will be on oath and may be used in any proceedings under the Bankruptcy Act whether that person is a party to the proceedings or not. Therefore, an examination by the Official Receiver may obtain the same information and achieve the same outcome as a public examination by the court. The costs of this process are substantially lower than that of a court examination. Although, there is an application process, and the Official Receiver will need to be provided with sufficient information to satisfy them as to the relevance of conducting those examinations.
The process of applying is also less onerous than that of issuing legal proceedings in court. The examinations can be initiated and completed within a shorter timeframe than public examinations in court. While a court public examination has strict processes and procedures, the Official Receiver has flexibility and is free to conduct the examination process however they see fit to achieve its purpose.
If the person fails to attend an examination, provide evidence or deliberately provides misleading evidence, they may face potential penalties. And therefore, an examination by the Official Receiver can be a more cost-effective option available to bankruptcy Trustees and creditors to progress investigations.
An examination under Section 77C is not without its downsides. Despite the authority and potential penalties, there may still be recalcitrant parties that refuse to comply with directions or vexatious litigants that may challenge and appeal the Official Receiver examination process. In those instances, it may be that court proceedings are inevitable, and therefore, there would be no purpose to delay proceeding straight to applying for an examination by the court.
As insolvency practitioners, we will assess the best options and alternatives available to select the most appropriate inquisitorial and investigative course of action to maximize the recoveries in any administration for the benefit of creditors.
If you have any questions, feel free to reach out to your local Worrells Principal.
