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01 May 2007

Public Examinations - Part 3


4 min

Over the last two months we have looked at the reasons why a liquidator or trustee would consider holding a public examination. We looked at who may apply for an order to examine people, and who may be examined. We also highlighted some of the differences between the provisions of the Bankruptcy Act and The Corporations Act.

This last part of the article looks at who may take part in the examination process. This question is partially answered by who may make the application in the first place. To recap:

  • The Bankruptcy Act allows the Trustee, the Official Receiver or any creditor with a provable debt to apply for an order to examine parties.
  • The Corporations Act limits the applicants to the Liquidator or Administrator, ASIC or a person authorized by ASIC (and that may be a creditor).

Under the Bankruptcy Act the list of people that may apply for and may take part in an examination are the same. But the Bankruptcy Act does not limit involvement to those who actually make the application. Any creditor can 'take part' in an examination and ask questions even when the trustee or another creditor made the application. It is likely that the Court would take a dim view of a trustee that refuses to allow a creditor to exercise this right.

The Bankruptcy Act goes further to allow a creditor to authorize someone else to represent them at the examination. This is usually a solicitor or barrister, but can be anyone. The nominee can then ask questions about the property, income, related trusts or companies and property held by spouses, or any other relevant topic.

The Corporations Act does not go into the same detail as the Bankruptcy Act, and there are no corresponding provisions that allow creditors to automatically take part in the examination. In practice, the person who applies for the examination will have the conduct of it, and that will usually be the liquidator.

The trustee or liquidator running the examination will usually have legal representation present on the day. A solicitor will be involved to make sure that all of the legal niceties are observed and, when needed, to give legal advice. Usually the trustee or liquidator will engage a barrister or a solicitor experienced in cross-examination to ask the questions. But there are pros and cons to this approach.

On one hand, barristers make their living asking questions, listening to answers and exploring the detail with follow up questions. This is what they do, and they generally do it very well.

On the other hand, no one is more conversant with the background of the matter than the trustee or liquidator, no matter how detailed the brief. Also the lawyers may not be as comfortable with the financial details and accounting statements, ledgers etc, as the accountant trustee or liquidator.

We generally find that the best results are achieved with an experienced solicitor or barrister asking the questions, while the trustee sits beside him at the bar table providing details and direction as required. It is generally worth the investment of this extra legal cost. Standing up in Court and firing questions to a witness sounds great in theory, but it is exceedingly more difficult that it looks. It is a skill that is only acquired from experience.

A summary of these three articles could be expressed as follows:

  • An examination in a Court is generally a better fact-finding tool than the alternatives under the Acts.
  • A trustee or liquidator will use examinations when fact, detail or documentation is not forthcoming.
  • The two Acts differ in the detail of who may apply and take part in examinations, but generally achieve the same result.
  • Any person with information on the affairs of the bankrupt or company may be examined and may have to produce their files to the Court.
  • Any question may be asked about information relevant to the affairs of the bankrupt or company, and the witness must answer the questions.

We hope that is series casts some light on why practitioners go to the time and expense of arranging and holding examination.

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