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Insolvency and Reconstruction Case Study

Case Study

Public examinations under sections 596A and 596B of the Corporations Act 2001 (Cth)

Slater and Gordon recently acted for a liquidator of a company that had been the franchisor of a fast food business with stores throughout the eastern suburbs and in inner western suburbs of Sydney. 

A creditor had moved to wind up the company, hoping to recover a debt, but once the liquidator was appointed they found that the directors had sold the company’s franchise rights, assigned the company’s intellectual property and otherwise divested the company of its assets.  The liquidator formed the view that these transactions may not have been for proper value, that some of the proceeds of the transactions may not have been received by the company, and/or that some of the divested assets were being exploited by newly formed companies owned and controlled by the directors.

Acting for the liquidator we conducted public examinations under sections 596A and 596B of the Corporations Act 2001 (Cth).  

Public examinations are a process by which a liquidator or administrator of a company (or other eligible applicant) can have a summons issued by the Supreme Court of an Australian State or the Federal Court of Australia, allowing them to examine, in Court:

  • any director, secretary or other officer of the company; or,
  • any other person who has taken part in, or has been concerned with, or may be able to provide information about, the examinable affairs of the company.  Such persons can include employees, auditors and solicitors.

The "examinable affairs” of a company include matters pertaining to the promotion, formation, management, administration and/or winding up or other affairs of the company or any related body corporate or connected entity.

The liquidator or administrator can also, by obtaining an order for production, oblige any such person to produce to the Court any relevant documents that are in that person’s custody or control.

Examinees are sworn to answer truthfully and cannot refuse, on the ground of self-incrimination, to answer a question put to them in a public examination.  However a person can, before answering the question, claim self-incrimination privilege.  When a person claims that privilege the answer they give is not admissible in evidence against them in a criminal proceeding or a proceeding for the imposition of a penalty.

By conducting the public examinations, the liquidator was able to obtain a clearer picture of what had occurred.  In particular, they were able to form a view on potential causes of action against those involved in any wrongdoing.   Thereafter, recovery proceedings were successfully undertaken.

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