You web browser may not be properly supported. To use this site and all its features we recommend using the latest versions of Chrome, Safari or Firefox

Kimberley Diamonds Ltd, in the matter of Kimberley Diamond Company Pty Ltd (in liq) [2016] FCA 1016

A recent decision of the Federal Court of Australia upheld an application by a liquidator to set aside a summons to be examined under section 596A of the Corporations Act 2001 (Act).


In May 2015 the board of Kimberley Diamond Company Pty Ltd (in liq) (company) forecast that the wholesale price of diamonds would be $143 per carat. In June 2015 the forecast price dropped to $105 per carat. In addition, the Western Australian government imposed a significant levy on the company.

In July 2015, the company entered into voluntary administration. The administrators advised creditors of the above developments and commenced a campaign to sell the mining operations of the company.

In August 2015, while the campaign was still under way, the creditors resolved that the company be placed into liquidation. The administrators were appointed as liquidators of the company.

In November 2015, the liquidators reported that the campaign had been unsuccessful. The liquidators issued a notice of disclaimer under section 568 of the Act. That disclaimer was not challenged.


The liquidators were pursuing the repayment of unfair preferences from the sole shareholder in the company, Kimberley Diamonds Ltd (shareholder).

The shareholder issued a summons pursuant to section 596A of the Act to examine the liquidator. The shareholders stated purpose was to investigate the campaign undertaken by the liquidator.

The liquidator challenged the summons on the basis that it was an abuse of process. He argued that the examination would place an unnecessary imposition on the liquidation, where there was no realistic prospect of the examination having any practical utility.


His Honour cited with approval the following passage on the role of a liquidator:

Administrators and liquidators are both “officers” within the s 9 definition and therefore subject to the duties arising under ss. 180 and 181, but also entitled to the benefit of the business judgment rule under s.180.(2). Proceeding in a prudent way in relation to the sale of assets is an incident of those duties. But on no view of matters can the duties be said to include a duty to sell at “the best possible price”. Administrators and liquidators are entitled to take into account a wide range of considerations. [i]

His Honour concluded that:

1. An examination under s 596A is to serve any purpose that will benefit the company, its creditors, its members or the public generally.

2. There is no duty upon a liquidator to obtain the best possible price for the company’s assets.

3. The investigation of the conduct of a liquidator is a supervisory function of the Court. The Court exercises that power by ensuring liquidators use their powers impartially and for a proper purpose.

4. The Court will not permit a liquidator to be sued by a creditor or have an inquiry made unless it is satisfied that there is prima facie evidence of wrongdoing.

5. A mandatory examination of a liquidator should not be permitted unless there is reason to believe that the examination may fulfil the purpose of s 596A; namely to benefit the company, its creditors, members or the public generally.

6. In this case, there was no positive evidence of:

(a) fraud, dishonesty or other misconduct;

(b) any conflict of interest or lack of impartiality in the conduct of the sales process;

(c) the campaign having been conducted in a manner inconsistent with the liquidator’s functions e.g. for any improper purpose;

(d) any particular flaw in the liquidators' exercise of commercial judgment with respect to the disclaimer; or

(e) that there may have been a different outcome more favourable to the liquidation if the liquidators had conducted the campaign differently.


The examination summons was an abuse of process and ought to be stayed. The examination would fulfil the purpose of section 596A. The examination, if permitted, would involve a substantial intrusion into the conduct of the liquidation.


The Court will not permit creditors or shareholders to examine liquidators unless there is some actual evidence of wrongdoing.

[i] Hausman v Smith [2006] NSWSC 682 at [10], Barret J.

The contents of this blog post are considered accurate as at the date of publication. However the applicable laws may be subject to change, thereby affecting the accuracy of the article. The information contained in this blog post is of a general nature only and is not specific to anyone’s personal circumstances. Please seek legal advice before acting on any of the information contained in this post.

Thank you for your feedback.

Related blog posts

Consumer and the Law
Liar loans: how mortgage brokers are putting clients at risk

The term ‘liar loans’ has been coined on the back of the Banking Royal Commission. This is because studies have shown almost 40 per cent of loan applications completed through mortgage brokers contained at least one factually incorrect statement. Whether mortgage brokers are providing lenders with incorrect information, or information that is out-of-date, they are putting themselves – and their clients – at risk. A recent study conducted by the Consumer Credit Legal Centre in New South Wales identified some mortgage brokers were breaking the law when filling out loan applications for their clients. Common examples included brokers suggesting their clients provide a different answer...

Planning desk close up documentresize
Consumer and the Law
How to lodge a complaint with Australian Financial Complaints Authority

The Australian Financial Complaints Authority (AFCA) acts as the middleperson between financial firms and consumers or small businesses, offering free and independent dispute resolution services. It deals with complaints about financial advice, insurance, banking and superannuation products and services. While the time limit to lodge a complaint to AFCA is usually between two and six years, the Australian Government recently created the opportunity for those with complaints up to 10 years old to come forward. This means consumers and small businesses have until 30 June 2020 to lodge complaints dating back to 1 January 2008. To lodge a complaint, you must follow AFCA’s process. It is...

How to lodge a complaint with Australian Financial Complaints Authority
Business Law
Proposed Changes to the Franchising Code of Conduct

Franchising is big business in Australia, with approximately 1,120 franchise systems and 79,000 franchise units operating nationally1. As franchising is a diverse sector with characteristics that are unique from other business models, franchises are governed by a mandatory Franchising Code of Conduct (Franchising Code).2 The Parliamentary Joint Committee on Corporations and Financial Services recently completed an inquiry into the operation and effectiveness of the Franchising Code and has released the Fairness in Franchising Report (Report).3 Some of the key findings and recommendations of the report are discussed below. The Committee recommends that the Australian Government establish an...

Waitress In Black Apron Upload

We're here to help

Start your online claim check now. Or, if you have a question, get in touch with our team.