FEDERAL COURT OF AUSTRALIA

Wainter Pty Ltd, in the matter of New Tel Limited (in liq) ACN 009 068 955 [2005] FCAFC 114

CORPORATIONS LAW – appeals against orders of a Federal Court Judge allowing orders for the issue of summonses for examination – history and purpose of provisions empowering a Court to summon a person for examination about a corporation’s examinable affairs – whether examination sought for an improper purpose – whether purpose of examination was to benefit the corporation, its contributories or creditors.

Corporations Act 2001 (Cth), ss 9, 53, 53(1)(a), 53AA, 64B, 436A, 436B, 436C, 436E, 436E(4), 437A, 438A, 439A(1), 439C, 444D, 444E, 445C, 472(4), 596A, 596B, 596C, 596D, 596F(1)(c), 596F(1)(d), 596F(1)(e), 596F(1)(f), 597, 597(4), 597(5A), 597(12), 597 (12A), 597(13), 597(14), 597(14A), 1041H, 1041I

Federal Court (Corporations) Rules 2000 (Cth), r 11.5

Companies Act 1862 (UK)

Companies Act 1961 (WA)

Companies Act 1981 (Cth)

Companies (Application of Laws) Act 1981 (WA)

Companies (Western Australia) Code

Corporations Bill 1988 (Cth)

Corporations Act 1989 (Cth)

Corporations Legislation Amendment Act 1990 (Cth)

Australian Securities Commission Act 1989 (Cth)

Corporations (Western Australia) Act 1990 (WA)

Corporate Law Reform Act 1992 (Cth)

Corporations Law, ss 9, 53, 436(1), 439(1), 442(1), 448(1)(a), 448(1)(b), 541, 597

Commonwealth Constitution, s 51(xxxvii)

Corporations (Commonwealth Powers) Act 2001 (WA)

Australian Securities and Investments Commission Act 2001 (Cth), s 1(2)

Trade Practices Act 1974 (Cth)

Fair Trading Act 1987 (WA)

Companies (New South Wales) Code, s 541

Explanatory Memorandum to the Corporate Law Reform Act 1992 (Cth)

Re Wakim; Ex parte McNally & Another (1999) 198 CLR 511 cited

R v Hughes (2000) 202 CLR 535 cited

Re GPI Leisure Corp Ltd (1994) 12 ACLC 1049 cited

Douglas-Brown v Furzer (1994) 13 ACSR 184 not followed

Simionato and Farrugia v Macks and Macks (1996) 19 ACSR 34 cited

Grosvenor Hill (Queensland) Pty Ltd v Barber (1994) 120 ALR 262 cited

Spedley Securities v Bank of New Zealand (1990) 3 ACSR 366 cited

Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) (1993) 12 ACSR 513 cited

Re Hugh J. Roberts Pty Ltd (in liq) (1970) 2 NSWLR 582 cited

Hamilton v Oades (1989) 166 CLR 486 discussed

Hill v Smithfield Service Centre Pty Ltd (in liq) (2003) 196 ALR 246 cited

Carter v Gartner (2003) 46 ACSR 264 cited

Flanders v Beatty (1995) 16 ACSR 324 cited

Friedrich v Herald and Weekly Times Ltd (1990) VR 995 cited

Gould v Brown (1998) 193 CLR 346 cited

Southern Cross Petroleum Sales (SA) Pty Ltd (in liq) v Hirsch and Another (1998) 70 SASR 527 applied

Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69 applied

Re Laurie Cottier Productions Pty Ltd (in liq) (1992) 9 ACSR 513 cited

Sandhurst Trustees Ltd v Harvey and Others (2004) 88 SASR 519 followed

In Re New Cap Reinsurance Corporation Holdings Ltd [2001] NSWSC 835 applied

New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610 considered

IN THE MATTER OF NEW TEL LIMITED (IN LIQUIDATION) ACN 009 068 955

PAUL DOMINIC EVANS AND DAVID WOOLFE v WAINTER PTY LTD ACN 008 725 586

WAD 194 of 2004

PETER FRANCIS MALONE v WAINTER PTY LTD ACN 008 725 586

WAD 228 of 2004

RYAN, LANDER AND CRENNAN JJ

15 JUNE 2005

BRISBANE (HEARD IN PERTH)

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD194 OF 2004

IN THE MATTER OF NEW TEL LIMITED (IN LIQ) ACN 009 068 955

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	PAUL DOMINIC EVANS AND DAVID WOOLFE APPELLANTS
AND:	WAINTER PTY LTD ACN 008 725 586 RESPONDENT
JUDGES:	RYAN, LANDER AND CRENNAN JJ
DATE OF ORDER:	15 JUNE 2005
WHERE MADE:	BRISBANE (HEARD IN PERTH)

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellants to pay the respondent’s costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD228 OF 2004

IN THE MATTER OF NEW TEL LIMITED (IN LIQ) ACN 009 068 955

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	PETER FRANCIS MALONE APPELLANT
AND:	WAINTER PTY LTD ACN 008 725 586 RESPONDENT
JUDGES:	RYAN, LANDER AND CRENNAN JJ
DATE OF ORDER:	15 JUNE 2005
WHERE MADE:	BRISBANE (HEARD IN PERTH)

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. The appellant to pay the respondent’s costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD194 OF 2004

IN THE MATTER OF NEW TEL LIMITED (IN LIQ) ACN 009 068 955

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PAUL DOMINIC EVANS AND DAVID WOOLFE

APPELLANT

AND:

WAINTER PTY LTD ACN 008 725 586

RESPONDENT

WAD228 OF 2004

IN THE MATTER OF NEW TEL LIMITED (IN LIQ) ACN 009 068 955

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PETER FRANCIS MALONE

APPELLANT

AND:

WAINTER PTY LTD ACN 008 725 586

RESPONDENT

JUDGES:	RYAN, LANDER AND CRENNAN JJ
DATE:	15 JUNE 2005
PLACE:	BRISBANE (HEARD IN PERTH)

REASONS FOR JUDGMENT

RYAN J:

1 Like Crennan J, I have had the advantage of reading in draft the reasons prepared by Lander J and the orders which he has proposed. I agree that the orders formulated by his Honour should be made. I also agree generally with his Honour’s reasons, based as they are on an exhaustive and accurate recital of the legislative history of the relevant provisions.

2 However, to dispose of the present appeals it is unnecessary, in my view, to enter into the controversy which has been generated by some readings of Flanders v Beatty (1995) 16 ACSR 324 and Sandhurst Trustees Ltd v Harvey (2004) 206 ALR 594. In the circumstances, I consider that a pronouncement by a Full Court of this Court on that matter should await an occasion when it will be decisive of the outcome of an instant case.

I certify that the preceding two (2) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

Associate:

Dated: 15 June 2005

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD194 OF 2004

IN THE MATTER OF NEW TEL LIMITED (IN LIQ) ACN 009 068 955

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PAUL DOMINIC EVANS AND DAVID WOOLFE

APPELLANT

AND:

WAINTER PTY LTD ACN 008 725 586

RESPONDENT

WAD228 OF 2004

IN THE MATTER OF NEW TEL LIMITED (IN LIQ) ACN 009 068 955

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PETER FRANCIS MALONE

APPELLANT

AND:

WAINTER PTY LTD ACN 008 725 586

RESPONDENT

JUDGES:	RYAN, LANDER AND CRENNAN JJ
DATE:	15 JUNE 2005
PLACE:	BRISBANE (HEARD IN PERTH)

REASONS FOR JUDGMENT

LANDER J:

The Proceedings

3 On 12 February 2004 the respondent, Wainter Pty Ltd (Wainter), issued proceedings seeking orders under s 596A and s 596B of the Corporations Act 2001 (Cth) (the Act).

4 The respondent sought an order pursuant to s 596A of the Act for the Court to issue examination summonses directed to Peter Francis Malone and Paul Dominic Evans to attend before the Court to be examined in respect of the examinable affairs of New Tel Limited (in liq) (New Tel) and to produce certain documents to the Court.

5 The respondent also sought an order pursuant to s 596B of the Act for the Court to issue an examination summons directed to David Woolfe requiring him to attend before the Court for the purpose of being examined in respect of the examinable affairs of New Tel and to produce certain documents to the Court.

6 The application for the orders for the issue of the examination summonses was supported by an affidavit of a director of the respondent, Barry Granville Waller.

7 On 4 March 2004 District Registrar Jan made the following orders:

‘1. Summonses for examination under section 596A of the Corporations Act be issued to Peter Francis Malone and Paul Dominic Evans in the form of the draft summonses as amended filed on 27 February 2004 and addressed to those persons respectively.

2. A Summons for examination under section 596B of the Corporations Act be issued to David Woolfe in the form of the draft summons as amended filed on 27 February 2004 and addressed to him.

3. Each of the summonses be returnable before a Registrar on a date and time to be fixed by the District Registrar.

4. The examinations be recorded in writing and the examinees do sign the written transcripts of their respective examinations.’

8 The summonses for examination directed to the three appellants identified the documents which each of the appellants was obliged to produce.

9 Each of the appellants issued interlocutory applications pursuant to Rule 11.5 of the Federal Court (Corporations) Rules 2000 (Cth) (the Rules) to set aside the orders made by the District Registrar. In the case of Mr Evans and Mr Woolfe, they also relied upon the Act.

10 On 6 August 2004 R D Nicholson J refused the appellants’ applications and made the following orders:

‘1. The interlocutory application on behalf of Mr Malone (“Malone”) dated 22 March 2004 to discharge the summons for examination by the plaintiff Wainter dated 10 March 2004 be refused.

2. The interlocutory application on behalf of Messrs Woolfe and Evans dated 18 March 2004 to discharge the summonses for examination by the plaintiff Wainter dated 10 March 2004 be refused.

3. The proceeding be referred to the Registrar for such further directions as may be necessary.

4. Each of the examinees Malone, Woolfe and Evans pay the plaintiff Wainter’s costs of the above interlocutory applications.’

11 Each of the appellants has appealed to this Court pursuant to leave granted by French J in the case of Mr Evans and Mr Woolfe on 2 September 2004, and in the case of Mr Malone on 21 October 2004. The appeals were heard together.

12 The appellants seek orders setting aside the judgment of R D Nicholson J and setting aside the orders for the issue of the summonses for examination made by District Registrar Jan.

History

13 Mr Evans was a director of New Tel between 27 September 1996 and 16 August 2001. Since 23 June 2000 he has been a partner in the law firm, Freehills. Mr David Woolfe was a partner in Freehills at least between 23 June 2000 and September 2003.

14 Mr Peter Malone was also a director of New Tel who remained in office until that company went into administration on 10 December 2002.

15 In April 2000 the respondent entered into an agreement with Cable and Telecom Ltd (CAT) to sell its shares in its subsidiary company, UDC Group Pty Ltd (later called E Communications & Networks Ltd) to CAT.

16 The consideration payable by CAT to the respondent was cash of $5 million payable in two tranches; $1.5 million at settlement; and a further $3.5 million within 12 months of settlement; and the allotment to the respondent of 35 million ordinary shares in CAT.

17 On 23 September 2001 New Tel announced a conditional script takeover of CAT subject to a number of conditions.

18 Mr Waller deposes that on 27 November 2001, and before New Tel issued a formal bidder’s statement in respect of the takeover of CAT, he had a telephone conversation at which both Mr Malone and Mr Woolfe were present and both spoke at times. He said that during that telephone conversation Mr Malone and Mr Woolfe told him that New Tel required Wainter to forgo the debt owed by CAT under the agreement. The debt then stood at $3.6 million, which included interest of $100,000.

19 Mr Waller said that he was told that such a course was in the respondent’s interests because otherwise the New Tel takeover would not proceed. He was told that if the debt to Wainter were extinguished, the shares in New Tel (which Wainter would acquire by reason of the takeover) would increase in value. Also, if Wainter were to agree to the proposal, New Tel would issue 2 million options in New Tel to Wainter.

20 Mr Waller said that he thought about the offer and later telephoned Mr Woolfe and advised him that the respondent agreed to the proposal.

21 Later, documentation was executed whereby the respondent assigned the $3.6 million debt to New Tel and acquired shares and options in New Tel in consideration of the CAT shares and options owned by the respondent.

22 On 10 December 2002 an administrator was appointed to New Tel. On 13 January 2003 Philip Patrick Carter and Gregory Winfield Hall were appointed liquidators of New Tel pursuant to a creditors voluntary winding up. On 4 March 2003 Mr Hall was appointed official liquidator.

23 Mr Waller has deposed:

‘19. I believe that as a result of Wainter’s agreement with New Tel as set out above Wainter has suffered a significant loss. But for the agreement, Wainter would have retained its substantial shareholding (and options) in CAT, and entitlement to payment of the Debt. The combined worth of the interest in the company and the Debt would be in the millions of dollars, perhaps in the region of $60 million.

20. I believe Wainter’s prospects of recovering all or any substantial amount of such loss from New Tel, in light of its liquidation and indications given e.g. in the extracts from the 2 January 2003 report to creditors referred to above, are minimal.’

24 On 28 April 2003 the respondent’s solicitors wrote a letter of demand to Freehills and Mr Woolfe. The letter contained the following:

‘9. But for the representations made by Messrs Malone and Wolfe [sic] (and by each of them, with the other being knowingly concerned in and party to representations by the other during the joint telephone call to Mr Barry Waller), Wainter would not have agreed to forgo the debt, and the takeover of CaT by NewTel would therefore not have proceeded. Had that occurred, Wainter would have retained its substantial shareholding of CaT (35,000,000 shares and 20,000,000 options) and its entitlement to the debt due under the Sale Agreement. We accept that determination of the hypothetical value of those assets, and hence Wainter’s damages, has the capacity to be very involved. In that regard, we are assuming that Wainter’s shares and options in NewTel will prove to be worthless or near worthless at the conclusion of the liquidation of NewTel. Wainter anticipates that its damages will be in the order of $A60,000,000 (sixty million dollars).

10. Information which has become available to Wainter concerning NewTel shows that there were no possible reasonable grounds for the representations made by Messrs Malone and Wolfe [sic] to Mr Barry Waller to induce Wainter to agree to transfer the debt in exchange for 2,000,000 options in NewTel. Accordingly, Mr Wolfe [sic] (and therefore Freehills) will be liable in damages to Wainter pursuant to the applicable legislative provisions, in common or similar form, relating to misleading and deceptive conduct and similar proscribed conduct.

Please let us know within 14 days whether or not Freehills and/or Mr Wolfe [sic] admit liability for the losses of Wainter (subject, of course, to quantification of those losses).

In addition, would you please let us know within those 14 days of any solicitors instructed to accept service on behalf of Freehills and/or Mr Wolfe [sic].’

25 The liquidator, Mr Hall, is a member of PriceWaterhouseCoopers. Mr Waller said that he and his solicitors met with Ian Richardson and Matthew Goland, of the Perth Office of PriceWaterhouseCoopers, on 17 June 2003 and informed them of the claim which had been made against Freehills. Mr Waller sought the liquidator’s assistance to establish New Tel’s financial position at the time Messrs Malone and Woolfe made the claimed representations on 27 November 2001.

26 Later, the respondent’s solicitors spoke to PriceWaterhouseCoopers raising the possibility of the liquidator examining persons in respect of the New Tel/Wainter agreement.

27 The respondent’s solicitors put the following proposal to the liquidator by letter dated 2 September 2003:

‘We have given particular consideration to the matter you raised, namely a possibility of examination under ss 596A and 596B of the Corporations Act. Accordingly, we set out below our client’s (Wainter’s) revised proposal for seeking agreement to engage your firm to provide the expert report contemplated in our 17 June 2003 letter but addressing also the matter of examination of relevant persons by the liquidators.

1. The liquidators will examine Messrs Paul D Evans (former director of New Tel and current partner of Freehills) and David Woolfe (former solicitor of New Tel and current partner of Freehills) pursuant to the Corporations Act examination procedures and require them to produce to the court all relevant documents held by them in relation to New Tel Ltd. Further, the liquidators will waive, in relation to our client Wainter Pty Ltd (“Wainter”), any legal professional privilege between Freehills and/or Messrs Evans or Woolfe and New Tel.

2. The liquidators will engage Wainter’s solicitors, Solomon Brothers, to conduct the examination and permit Solomon Brothers, as solicitors of Wainter, to be provided with a copy of the transcript of the examinations and copies of all relevant documents produced by the examinations. Wainter will pay all the costs and disbursements of the examinations and indemnify the liquidators in respect of any adverse costs orders. Solomon Brothers undertakes to make full disclosure to the Court of any agreement arising from acceptance of this offer in seeking orders for examination.

3. The liquidators will provide a report to Wainter as to New Tel’s solvency and financial prospects as at 27 November 2001. The amount or limit of the liquidators’ fee for provision of such report is to be agreed between PriceWaterhouseCoopers and Wainter, as a condition precedent to an agreement on acceptance of this offer.

4. Subject to:

4.1 the liquidators engaging Solomon Brothers pursuant to 2 above and not withdrawing such engagement before the examinations are completed, or the examination process is otherwise terminated by the Court prior to completion; and

4.2 the liquidators providing a report to Wainter as provided for in 3 above,

Wainter agrees:

(a) not to prove in the liquidation of New Tel for Wainter’s losses arising out of the conduct of Mr Peter Malone (“Malone”) as director of New Tel; and

(b) not to pursue Malone personally for those losses, which will benefit the unsecured creditors of New Tel by not competing with respect to the limited amount of insurance held by Malone.’

28 The liquidator declined to assist.

29 The respondent then filed a proof of debt with the liquidator of New Tel in the sum of $60 million claiming the amount was due for damages for misleading or deceptive conduct in relation to a financial product, pursuant to s 1041H and s 1041I of the Act, arising out of the conduct of the company by its director, Mr Peter Malone and its solicitor, Mr David Woolfe.

30 On 6 January 2004 the respondent, through its solicitor, wrote to the Australian Securities and Investment Commission (ASIC) seeking its approval to examine persons about the examinable affairs of New Tel pursuant to s 596A and s 596B of the Act.

31 The respondent contended in that letter that it was not an eligible applicant within the meaning of the Act and required ASIC’s authorisation. On 21 January 2004 ASIC provided the necessary authorisation.

32 Subsequently, the respondent, through its solicitors, wrote asking the liquidator, on behalf of New Tel, to waive any claim for legal professional privilege available to New Tel. The liquidator has not responded to that request.

33 Mr Waller deposed in his affidavit to the matters upon which the respondent wished to examine:

‘31. Wainter seeks to examine, and seek production of relevant documents from:

31.1 Mr Evans, as to:

31.1.1 the reasons why he resigned as director of New Tel in August 2001 and in particular as to his knowledge of New Tel’s financial position when he resigned (and thereafter until 27 November 2001 when the agreement with Wainter was struck);

31.1.2 communications between Mr Evans and:

(i) other Freehills partners or personnel, including Mr Woolfe; and

(ii) Mr Malone and other directors or employees of New Tel

prior to, or at the time of, or after, Mr Evans’ resignation as a director of New Tel (“the Resignation”) concerning the proposed Resignation (and later, the actual Resignation) of Mr Evans and, particularly, the reasons therefore;

31.1.3 Mr Evans’s knowledge of the agreement between New Tel and Wainter, and any communications he had with New Tel (especially with Mr Malone), and/or other Freehills personnel (especially Mr Woolfe) in that regard;

31.2 Mr Woolfe, as to:

31.2.1 the representations he made to me on 27 November 2001 and the basis (or otherwise) for those representations, especially the representation that Wainter would be better off if it took up the proposal he and Mr Malone made;

31.2.2 his knowledge at all times of the financial position of New Tel;

31.2.3 communications between Mr Woolfe and:

(i) other Freehills partners or personnel, including Mr Evans; and

(ii) Mr Malone and other directors or employees of New Tel

31.2.4 any communications he had with New Tel and/or other Freehills personnel with respect to the agreement struck with Wainter;

31.3 Mr Malone, as to:

31.3.1 the representations he and Mr Woolfe made to me on 27 November 2001 and the basis (or otherwise) for those representations, especially the representation that Wainter would be better off if it took up the proposal;

31.3.2 his knowledge at all times of the financial position of New Tel from at least August 2001 and in particular as at November 2001;

31.3.3 communications between Mr Malone and:

(i) Mr Evans and other Freehills partners or personnel, including Mr Woolfe; and

(ii) other directors or employees of New Tel

31.3.4 all communications he had with Freehills or any other party with respect to the agreement made with Wainter.’

34 Mr Waller said that the respondent’s primary purpose for seeking to examine the examinees was to assist in recovering the respondent’s losses sustained by virtue of the 27 November 2001 representations. He said that the respondent intended to make use of the examination procedure and documents produced on the examination to ‘facilitate commencing proceedings out of this Honourable Court or the Supreme Court of Western Australia against Freehills’.

35 He indicated that there would be some benefit to New Tel if the examinations proceeded. He said:

‘33. Nevertheless, and as indicated in the letter to ASIC dated 6 January 2004 by Solomon Brothers, I believe this course (of being able to examine the examinees) would benefit the other creditors of New Tel, for the following reasons:

33.1 the liquidator could obtain access to the information deriving from the examinations which would, I believe, facilitate the investigations into New Tel’s financial position, and possibility of action against New Tel directors (e.g. Mr Malone) for insolvent trading, which the liquidator has indicated (see e.g. annexure BW-12 above) might be pursued;

33.2 if Wainter succeeds against Freehills and recovers all its loss from Freehills and/or Freehills’ insurers, Wainter will not need to seek recover [sic] out of the liquidation of New Tel, nor from Mr Malone and his insurers (against whom the liquidator may be able to make claim for insolvent trading or otherwise);

33.3 the end result of recovery by Wainter against Freehills will therefore be to substantially increase the pool of funds available to the other creditors of New Tel.’

36 The District Registrar made the orders to which I have referred apparently upon the matters deposed to by Mr Waller in that affidavit.

37 Whilst each of the appellants filed affidavits in support of their applications to set aside the orders made by the District Registrar, no other relevant facts are disclosed in those affidavits.

The Proceedings before the Primary Judge

38 The appellants contended before the primary judge that the sole purpose of the proposed examination was to elicit evidence in relation to causes of action said to have arisen out of the representations made by Mr Malone and Mr Woolfe on 27 November 2001. They contended that the examinations would be of no benefit to New Tel. The examinations, it was submitted, were sought to be conducted to give the respondent a forensic advantage. Indeed, it was suggested that the examinations could be used to obtain evidence to bring proceedings against New Tel thereby disadvantaging other creditors.

39 The appellants argued that the examination summonses should be set aside because the purpose of the examinations was improper and an abuse of the Court’s processes.

40 The primary judge found that the respondent’s purpose was not improper and did not amount to an abuse of process. First, he concluded that the examinations could provide information of use to the liquidator in respect of claims of possible insolvent trading by directors. That, he said, would depend upon the examinations themselves.

41 Secondly, he found that, if the examinations provided evidence upon which the respondent could rely in an action against Freehills and thereby recover its losses from Freehills, the respondent would not seek to recover any of those losses from New Tel or from New Tel’s director, Mr Malone, or his insurers. It followed that, if the respondent recovered its losses from Freehills that would mean the other creditors would be likely to receive an increased dividend.

The Grounds of Appeal to this Court

42 The grounds of appeal for which French J gave leave in relation to Mr Evans’ and Mr Woolfe’s appeal are:

‘1 His Honour erred in law in failing to have regard to the purpose or alternatively the predominant purpose of Wainter in determining whether the proposed examinations were an abuse of process.

2 His Honour erred in law in failing to make any finding as to the purpose or alternatively the predominant purpose of Wainter in proposing to conduct the proposed examinations.

3 His Honour erred in law in determining that the applicable test in determining whether the proposed examinations were an abuse of process was whether the proposed examinations had the potential to benefit New Tel Limited and its creditors.

4 His Honour erred in law in determining that if the applicable test in determining whether the proposed examinations were an abuse of process was whether the proposed examinations had the potential to benefit New Tel Limited (the company in liquidation) and its creditors, that such test was satisfied in circumstances where if an action was brought by Wainter against Freehills and Freehills joined New Tel Limited in such proceedings and sought from New Tel Limited an indemnity.

5 His Honour erred in law in determining that the applicable test in determining whether the proposed examinations were an abuse of process was whether the proposed examinations provided the possibility of assisting the liquidators of New Tel Limited and ASIC.

6 His Honour erred in law in, in effect, determining that if the applicable test in determining whether the proposed examinations were an abuse of process was whether the proposed examinations had the potential to benefit New Tel Limited (the company in liquidation) and its creditors, the proposed examinees bore an onus of proving that there is no benefit to the company to be derived from the proposed examinations rather than the putative examiners proving benefit.

7 His Honour erred in law in determining that in the event that the applicable test in determining whether the proposed examinations were an abuse of process was whether the proposed examinations had the potential to benefit New Tel Limited (the company in liquidation) and its creditors that there was any benefit to New Tel Limited or its creditors arising from the examinations.’

43 Although Mr Malone’s grounds for appeal are slightly differently expressed, they are not so different so as to make any material difference.

History of the Legislation

44 Because it is necessary to have regard to a number of decisions which have examined this and earlier legislation empowering the Court to summon a person for examination, it is also necessary to have a brief understanding of the history of the legislation.

45 Prior to Federation, corporate regulation in the Australian colonies was implemented by unique companies legislation based on the Companies Act 1862 (UK).

46 Following Federation the retention by the States of the power to legislate with respect to corporations resulted in the fragmentation of companies legislation throughout the Commonwealth.

47 In 1961 the States agreed to enact the first uniform Companies Act in order to address the deficiencies in the then prevailing system: Western Australia enacted the Companies Act 1961 (WA) (the 1961 Act).

48 The uniform scheme was improved upon in 1981 with the passing by the States of Companies Codes. The Codes were part of an applied laws regime that adopted the Companies Act 1981 (Cth) which, for various constitutional reasons, could apply only in the Australian Capital Territory. In Western Australia the Parliament enacted the Companies (Application of Laws) Act 1981 (WA) and the Companies (Western Australia) Code (WA) (the Code).

49 In 1988, the Commonwealth Government introduced the Corporations Bill 1988, which was eventually enacted in the form of the Corporations Act 1989 (Cth) (the 1989 Act). Various provisions of the new legislation were impugned and struck down in the High Court. As a result, the extent of the Commonwealth’s power to introduce a national scheme was curtailed: New South Wales v Commonwealth (1990) 169 CLR 482.

50 The limitations on the scope of Commonwealth corporations legislation found by the High Court meant that intergovernmental co-operation between the States and the Commonwealth was necessary to implement the national scheme envisaged by the 1989 Act.

51 The 1989 Act was amended to apply only in the Australian Capital Territory: The Corporations Legislation Amendment Act 1990 (Cth) (the 1990 Act). The States agreed to pass application laws in the form of State Corporations Acts which adopted the provisions of the 1989 Act and the Australian Securities Commission Act 1989 (Cth). In Western Australia, the Parliament enacted the Corporations (Western Australia) Act 1990 (WA). The 1989 Act and the 1990 Act were known as the ‘Corporations Law’. Substantial amendments were made to the 1989 Act by the Corporate Law Reform Act 1992 (Cth) (the 1992 Act) which had the effect of amending the Corporations Law.

52 The State Acts also created a cross vesting system, some aspects of which were held unconstitutional in Re Wakim; Ex parte McNally & Another (1999) 198 CLR 511.

53 The substantive operation of the national scheme was also called into question by the High Court’s decision in R v Hughes (2000) 202 CLR 535, insofar as States purported to confer powers on Commonwealth officers pursuant to the scheme.

54 To ameliorate these difficulties and ensure the subsistence of a national corporate regulatory regime, the States referred to the Commonwealth their residual powers with respect to corporations and related matters pursuant to s 51 (xxxvii) of the Commonwealth Constitution: Corporations (Commonwealth Powers) Act 2001 (WA).

55 The Act and the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) are the culmination of the process of national co-operation since 1961.

56 In these reasons, there will be references to the 1961 Act, the Code, the Law, the 1989 Act, the Corporations Law, the 1992 Act and the Act.

The Relevant Provisions in the Act

57 The provisions empowering a Court to summon a person for examination about a corporation’s examinable affairs are contained in Part 5.9 of the Act (and were contained in Part 5.9 of the Corporations Law). There are no relevant differences between the Corporations Law after it was amended by the 1992 Act and the Act.

58 An ‘eligible applicant’ is entitled to apply to the Court to summon a person for examination under ss 596A or 596B of the Act. An eligible applicant is defined in s 9 of the Act:

‘eligible applicant, in relation to a corporation, means:

(a) ASIC; or

(b) a liquidator or provisional liquidator of the corporation; or

(d) an administrator of a deed of company arrangement executed by the corporation; or

(e) a person authorised in writing by ASIC to make:

(i) applications under the Division of Part 5.9 in which the expression occurs; or

(ii) such an application in relation to the corporation.’

59 The parties in paragraphs (a), (b) and (e) are well known. The parties in paragraphs (c) and (d) were introduced into the Law for the first time by the 1992 Act which recognised further methods of external administration. Prior to 1992 the Law did not provide for a system of administration by an administrator of a corporation or an administrator of a deed of a company arrangement. There are no relevant differences between the Law after amendment by the 1992 Act and the Act in relation to the systems of external administration.

60 ASIC is in an unique position. Section 1(2) of the ASIC Act shows that it has been established to:

‘(a) maintain, facilitate and improve the performance of the financial system and the entities within that system in the interests of commercial certainty, reducing business costs, and the efficiency and development of the economy; and

(b) promote the confident and informed participation of investors and consumers in the financial system; and

(d) administer the laws that confer functions and powers on it effectively and with a minimum of procedural requirements; and

(e) receive, process and store, efficiently and quickly, the information given to ASIC under the laws that confer functions and powers on it; and

(f) ensure that information is available as soon as practicable for access by the public; and

(g) take whatever action it can take, and is necessary, in order to enforce and give effect to the laws of the Commonwealth that confer functions and powers on it.’

61 ASIC would carry out any examination under Part 5.9 of the Act in furtherance of those functions and powers.

62 The other parties who comprise eligible applicants, namely, liquidators, administrators and administrators of a deed of company arrangement, are all officers of the corporation in which they hold their respective offices: s 9 of the Act.

63 Section 9 does not include a provisional liquidator in the definition of ‘officer’ but a provisional liquidator is probably also an officer of the corporation. It may be that s 9 does not make reference to provisional liquidators because it has been thought that provisional liquidators have, until recently, been appointed to safeguard the assets of the corporation pending the appointment of a liquidator. However, s 472(4) of the Act might suggest that provisional liquidators could, in some circumstances, have a more active role. That does not need to be decided on these appeals.

64 The various parties referred to in the definition of ‘eligible applicant’ apart from ASIC assume responsibilities within the corporation in circumstances where they have had no previous involvement. They are all appointed for the purpose of protecting the assets of the corporation. They may or may not get assistance from the directors and officers of the corporation. In many cases they do not. In many cases their appointments follow some misconduct on the part of the corporation’s directors and officers. Indeed, as will shortly be seen, s 596B recognises that an eligible applicant may need to use the powers under Part 5.9 to inquire into the conduct of the corporation’s officers for the purposes of establishing whether they have been guilty of misconduct. Whether eligible applicants get assistance or not, they need to be informed of the corporation’s examinable affairs.

65 It is for that reason that liquidators and the regulator were given powers to inquire into the corporation’s examinable affairs and why the two kinds of administrators first recognised in the 1992 Act were given those same powers after the enactment of that Act and the amendment of the Corporations Law.

66 A creditor of a corporation is not an eligible applicant. Because of the provisions of s 596A and s 596B, to which I will shortly refer, only an eligible applicant can apply for an examination summons which means that a creditor has no status to apply: Re GPI Leisure Corp Ltd (1994) 12 ACLC 1049. Dicta to the contrary in Douglas-Brown v Furzer (1994) 13 ACSR 184 at 189 should not be followed.

67 A receiver is also not an eligible applicant.

68 It follows that receivers and creditors can only apply to the Court under Part 5.9 of the Act if authorised by ASIC in accordance with paragraph (e) of the definition of ‘eligible applicant’.

69 Section 596A provides:

‘596A The Court is to summon a person for examination about a corporation’s examinable affairs if:

(a) an eligible applicant applies for the summons; and

(b) the Court is satisfied that the person is an examinable officer of the corporation or was such an officer during or after the 2 years ending:

(i) if the corporation is under administration – on the section 513C day in relation to the administration; or

(ii) if the corporation has executed a deed of company arrangement that has not yet terminated – on the section 513C day in relation to the administration that ended when the deed was executed; or

(iii) if the corporation is being, or has been, wound up – when the winding up began; or

(iv) otherwise – when the application is made.’

70 An ‘examinable officer’ is defined in s 9:

‘“examinable officer”, in relation to a corporation, means:

(a) a director, secretary or executive officer of the corporation; or

(b) a receiver, or receiver and manager, of property of the corporation (whether appointed under a provision contained in an instrument, or by a court); or

(d) an administrator of a deed of company arrangement executed by the corporation; or

(e) a liquidator or provisional liquidator of the corporation (whether or not appointed by a court); or

(f) a trustee or other person administering a compromise or arrangement made between the corporation and any other person or persons.’

71 An ‘executive officer’ is also defined in s 9:

‘“executive officer” of a body corporate means a person who is concerned in, or takes part in, the management of the body (regardless of the person’s designation and whether or not the person is a director of the body).’

72 I have already noted that a provisional liquidator is not an eligible applicant. However, a provisional liquidator may be an examinable officer. More importantly, a liquidator, an administrator and an administrator of a deed of company arrangement can be both an eligible applicant and an examinable officer. There is nothing surprising about that. It may be that in a given case ASIC has a need to inquire into the conduct of the examinable affairs of a corporation during a liquidator’s administration. So also a liquidator might need to inquire into a corporation’s examinable affairs constituted by events which occurred whilst the corporation was under the control of an administrator. Section 596A is in the widest possible terms so that the relevant eligible applicant can inquire into the examinable affairs of the corporation. The eligible applicant need only establish that he or she has that status and that the person who is sought to be summoned is an examinable officer within the meaning of s 596A(2). The eligible applicant does not have to establish any reason for seeking an order to summon a person for examination.

73 Section 596B provides:

‘596B(1) The Court may summon a person for examination about a corporation’s examinable affairs if:

(a) an eligible applicant applies for the summons; and

(b) the Court is satisfied that the person:

(i) has taken part or been concerned in examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or

(ii) may be able to give information about examinable affairs of the corporation.

596B(2) This section has effect subject to section 596A.’

74 Misconduct is defined in s 9:

‘“misconduct” includes fraud, negligence, default, breach of trust and breach of duty’.

75 The corporation’s ‘examinable affairs’ is defined in s 9 of the Act:

‘“examinable affairs”, in relation to a corporation means:

(a) the promotion, formation, management, administration or winding up of the corporation; or

(b) any other affairs of the corporation (including anything that is included in the corporation’s affairs because of section 53); or

(c) the business affairs of a connected entity of the corporation, in so far as they are, or appear to be, relevant to the corporation or to anything that is included in the corporation’s examinable affairs because of paragraph (a) or (b).’

76 That definition also picks up s 53 of the Act which provides:

‘53 For the purposes of the definition of “examinable affairs” in section 9, section 53AA, 232, 233 or 234, paragraph 461(1)(e), section 487, subsection 1307(1) or section 1309, or of a prescribed provision of this Act, the affairs of a body corporate include:

(a) the promotion, formation, membership, control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons and including transactions and dealings as agent, bailee or trustee), property (whether held alone or jointly with any other person or persons and including property held as agent, or jointly with any other person or persons and including property held as agent, bailee or trustee), liabilities (including liabilities owed jointly with any other person or persons and liabilities as trustee), profits and other income, receipts, losses, outgoings and expenditure of the body; and

(b) in the case of a body corporate (not being an authorised trustee corporation) that is a trustee (but without limiting the generality of paragraph (a)) – matters concerned with the ascertainment of the identity of the persons who are beneficiaries under the trust, their rights under the trust and any payments that they have received, or are entitled to receive, under the terms of the trust; and

(d) any act or thing done (including any contract made and any transaction entered into) by or on behalf of the body, or to or in relation to the body or its business or property, at a time when:

(i) a receiver, or a receiver and manager, is in possession of, or has control over, property of the body; or

(ii) the body is under administration; or

(iia) a deed of company arrangement executed by the body has not yet terminated; or

(iii) a compromise or arrangement made between the body and any other person or persons is being administered; or

(iv) the body is being wound up;

and, without limiting the generality of the foregoing, any conduct of such a receiver or such a receiver and manager, of an administrator of the body, of an administrator of such a deed of company arrangement, of a person administering such a compromise or arrangement or of a liquidator or provisional liquidator of the body; and

(e) the ownership of shares in, debentures of, and interests in a managed investment scheme made available by, the body; and

(f) the power of persons to exercise, or to control the exercise of, the rights to vote attached to shares in the body or to dispose of, or to exercise control over the disposal of, such shares; and

(g) matters concerned with the ascertainment of the persons who are or have been financially interested in the success or failure, or apparent success or failure, of the body or are or have been able to control or materially to influence the policy of the body; and

(h) the circumstances under which a person acquired or disposed of, or became entitled to acquire or dispose of, shares in, debentures of, or interests in a managed investment scheme made available by, the body; and

(j) where the body has made available interests in a managed investment scheme – any matters concerning the financial or business undertaking, scheme, common enterprise or investment contract to which the interests relate; and

(k) matters relating to or arising out of the audit of, or working papers or reports of an auditor concerning, any matters referred to in a preceding paragraph.’

77 ‘Property’ is defined in s 9 as follows:

‘… any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action.’

78 Section 53 of the Corporations Law was not relevantly different prior to the 1992 Act and, as such, defined the scope of the examination under the then s 597 of the Corporations Law. Section 53 then defined the affairs of a corporation. The 1992 Act included the definition of ‘examinable affairs’ to which I have referred. Paragraph (a) of the definition of examinable affairs in s 9 of the Act does not seem to add much to the matters in s 53 which are included in ‘examinable affairs’ by paragraph (b) of that same definition. Paragraph (c), however, also includes within the examinable affairs of the corporation the business affairs of a connected entity within the limits expressed in that definition.

79 Because of paragraph (c) of that definition, the examinable affairs of a corporation include the business affairs of a connected entity insofar as they are or appear to be relevant to the corporation’s examinable affairs. To that extent it may be said that the 1992 Act extended the potential scope of an examination under Part 5.9: see s 53AA and s 64B.

80 It is not necessary to consider the precise ambit of an examination under the Act or under the Law after the Law was amended by the 1992 Act, except to observe that it is extremely wide: Simionato and Farrugia v Macks and Macks (1996) 19 ACSR 34 at 55. Section 53(1)(a) of the Act, by itself, makes that clear.

81 An examination to determine whether the corporation would be likely to succeed in litigation against its officers, auditors or third parties would be within the examinable affairs of a corporation. Such an examination would assist an eligible applicant in identifying a chose in action which is an asset of the corporation: Grosvenor Hill (Queensland) Pty Ltd v Barber (1994) 120 ALR 262; Spedley Securities v Bank of New Zealand (1990) 3 ACSR 366 at 376.

82 An examination to determine whether any chose in action will be ultimately recoverable from any party or that party’s insurer is also within the contemplation of the section: Gerah Imports Pty Ltd v The Duke Group Ltd (in liq) (1993) 12 ACSR 513. Indeed, such an examination may be of a person against whom litigation is contemplated or even pending: Re Hugh J. Roberts Pty Ltd (in liq) (1970) 2 NSWLR 582; Hamilton v Oades (1989) 166 CLR 486 at 497; Re Laurie Cottier Productions Pty Ltd (in liq) (1992) 9 ACSR 513 (‘Re Laurie’).

83 Section 596A is mandatory in its terms. If the applicant before the Court is an eligible applicant and the eligible applicant satisfies the Court that the person who is sought to be summoned is an examinable officer of the kind in s 596A(b), the Court must summon that examinable officer for examination about the corporation’s examinable affairs. If the eligible applicant can satisfy the criteria in s 596A the Court has no discretion to refuse to issue the examination summons: Simionato and Farrugia v Macks and Macks (1996) 19 ACSR 34 at 56; Hill v Smithfield Service Centre Pty Ltd (in liq) (2003) 196 ALR 246 at [21]-[22] and [47]; Carter v Gartner (2003) 46 ACSR 264.

84 Section 596A is concerned with those persons who have had the responsibility of management of the corporation in the various capacities referred to in the definition of ‘examinable officer’. The eligible applicant is not obliged to establish that there has been any misconduct on the part of the proposed examinee or any other person. The power must be exercised by the Court if the eligible applicant establishes that the proposed examinee is an examinable officer of the kind referred to in the section. The corporation may be in administration, subject to a deed of company arrangement, or being wound up. However, that is not essential. ASIC, or a person authorised by ASIC, could apply to summon an examinable officer about the corporation’s examinable affairs even where the company is solvent and still trading provided that person is an examinable officer at the time of the application: s 596A(b)(iv). Because there is no limit as to whom ASIC might authorise as an eligible applicant under (e) of the definition of eligible applicant, a creditor of a corporation might be authorised by ASIC and could then require a Court to summon an examinable officer of that corporation if that person was an officer at the time of the application even where the corporation is still trading.

85 However, the Court could refuse to issue an examination summons if the Court were satisfied that the eligible applicant had an improper purpose for seeking the examination. In those circumstances, the Court would refuse to make the order because the improper purpose would be an abuse of the Court’s process: Hamilton v Oades (1989) 166 CLR 486 at 497 per Mason CJ and at 502 per Deane and Gaudron JJ. It is now accepted that, in determining whether an order for examination should be made, consideration should be given to the purpose for which the order is sought. The power must not be used for purposes foreign to those for which the power is conferred: Flanders v Beatty (1995) 16 ACSR 324. So, also, if an order has been made under s 596A the Court can set aside the order if the Court is satisfied that the order was obtained for an improper purpose.

86 Section 596B empowers an eligible applicant to seek an order from the Court summoning a person who has taken part or been engaged in the corporation’s examinable affairs and has been or may have been guilty of fraud, negligence, default, breach of trust or breach of duty in relation to the corporation. Alternatively, the Court may summon a person for examination about a corporation’s examinable affairs if that person may be able to give information about the corporations’ examinable affairs. Section 596B is not limited to persons who are examinable officers of the corporation. The person who may be summoned may, therefore, be an employee of the corporation who is not an examinable officer or some other person who is neither an examinable officer nor an employee. The criteria for examination are set out in s 596B(b). As noticed above, the Court may summon a person simply upon the ground that the person may be able to give information about examinable affairs of the corporation.

87 For an order to be made under this section the applicant must establish that he or she is an eligible applicant and that either the person sought to be summoned has taken part or been concerned in the examinable affairs of the corporation and has been or may have been guilty of misconduct in relation to the corporation, or may be able to give information about the corporation’s examinable affairs. The power to order that a person attend for examination is discretionary.

88 Section 596B has effect subject to s 596A: s 596B(2).

89 It is not difficult to understand why the power given in s 596B is discretionary rather than mandatory as in s 596A. The class of persons who may be examined under s 596B is much wider than under s 596A which only applies to examinable officers. Because the Court is given a discretion, the Court needs to be aware of the purpose and subject matter of the examination. In that way, the Court can ensure that only those persons who qualify under s 596B(b) are summoned for examination.

90 Section 596C requires an eligible applicant who applies under s 596B to file an affidavit in support of the application. The necessity for that affidavit is obvious in an application under s 596B. Apart from, of course, proving that the applicant is an eligible applicant, it is necessary to establish one of the matters identified in sub-paragraphs (i) or (ii) of paragraph (b) of s 596B(1).

91 The conduct of the examination is provided for in s 597. Section 597(4) provides that the examination is to be held in public, except if the Court considers that ‘by reason of special circumstances’ it is desirable to hold the examination in private. Thus, Part 5.9 contemplates that examinations under the Part should ordinarily be held in public. Section 597(4) recognises that it will often be desirable to inform the public of the matters inquired into: Friedrich v Herald and Weekly Times Ltd (1990) VR 995. If there are special circumstances the Court may order that the examination proceed in private but ‘… an order cannot be justified unless it be shown that the particular question and answer or even, arguably, some particular line of questioning will, if published, result in prejudice of a kind which outweighs the need for publicity which the legislature sees as forming an essential element of the purposes of examinations under s. 541’: Friedrich v Herald and Weekly Times Ltd and Another (1990) VR 995 at 1007.

92 Section 596F(1)(c) empowers a court to direct who may be present at an examination while it is being held in private, and s 596F(1)(d) allows a court to direct that a person be excluded from examination, even whilst it is being held in public. Section 596F(1)(e) allows the Court to give directions as to who should have access to the records of the examination. Section 596F(1)(f) empowers the Court to prohibit publication or communication of information about the examination, including the questions and answers at the examination. Section 596F permits and empowers the Court to fashion its own procedure and furnish whatever safeguards are necessary so as to allow the examination to proceed without prejudicing the examinee, particularly in regard to any later criminal proceedings.

93 Section 597(5A) provides for ASIC, and any other eligible applicant in relation to the corporation, to be represented by a solicitor or counsel at the examination.

94 An examinee is not entitled to avoid or refuse to answer a question on the ground that any answer may tend to incriminate him or her: s 597(12). However, where an examinee, before answering a question, claims that the answer might tend to incriminate the examinee, or make the examinee liable to a penalty, the answer is not admissible in evidence against the examinee in a criminal proceeding or a proceeding for the imposition of a penalty: s 597(12A).

95 In conducting the examination, the Court may order that the questions put to an examinee and the examinee’s answers be recorded in writing, and may require the examinee to sign that written record. Any written record may be used in evidence in any legal proceedings against the examinee: s 597(13) and s 597(14).

96 That written record is to be open for inspection by the eligible applicant who applied for the examination or by an officer or creditor or anyone else who pays the prescribed fee.

97 Sections 596A and 596B have been the subject of numerous decisions in all jurisdictions throughout Australia.

The parties come within the terms of the sections

98 The respondent is an eligible applicant because it is a person authorised in writing by ASIC to make applications under Division 1 of Part 5.9: s 9.

99 Both Mr Evans and Mr Malone, by virtue of being directors of New Tel, are examinable officers; in the case of Mr Malone because he was a director when the company went into administration; and in the case of Mr Evans because he had been a director within two years of the company being wound up.

100 Mr Woolfe was not a director of New Tel but was found to be a person who may be able to give information about examinable affairs of the corporation: s 596B(1).

Earlier decisions on earlier legislation

101 The current sections were enacted by the 1992 Act and it is necessary to keep in mind that the present sections have evolved since the statutory regime was considered by the High Court in Hamilton v Oades (1989) 166 CLR 486.

102 In that case, the High Court was called upon to consider the predecessor to s 596B, which was then s 541 of the Companies (New South Wales) Code (the NSW Code). That section was in the same form as the Code. The Code did not have an equivalent of s 596A.

103 Section 541 of the NSW Code relevantly provided:

‘ (1) In this section, a reference, in relation to a corporation, to a prescribed person, shall be construed as a reference to an official manager, liquidator or provisional liquidator of the corporation or to any other person authorized by the Commission to make applications under this section or to make an application under this section in relation to that corporation.

(2) Where it appears to the Commission or to a prescribed person that —

(a) a person who has taken part or been concerned in the promotion, formation, management, administration or winding up of, or has otherwise taken part or been concerned in affairs of, a corporation has been, or may have been, guilty of fraud, negligence, default, breach of trust, breach of duty or other misconduct in relation to that corporation; or

(b) a person may be capable of giving information in relation to the promotion, formation, management, administration or winding up of, or otherwise in relation to affairs of, a corporation,

the Commission or prescribed person may apply to the Court for an order under this section in relation to the person.

(3) Where an application is made under sub-section (2) in relation to a person, the Court may, if it thinks fit, order that the person attend before the Court on a day and at a time to be fixed by the Court to be examined on oath or affirmation on any matters relating to the promotion, formation, management, administration or winding up of, or otherwise relating to affairs of, the corporation concerned.’

104 The Commission was the National Companies and Securities Commission: s 5 of the Code. The Commission was the predecessor of ASIC and charged with similar regulatory duties.

105 There is, in my opinion, no relevant difference between a ‘prescribed person’ and an ‘eligible applicant’. A ‘prescribed person’ included an official manager, liquidator, provisional liquidator of a corporation or a person authorised by the Commission. The inclusion of a provisional liquidator in s 541 but not in ‘eligible applicant’ in the Act is unimportant. The only form of external management apart from liquidation, or possibly receivership, recognised in the Code was official management. Therefore, there was no reference to the two types of administration which were first recognised in the 1992 Act. In both Acts the regulatory authority could authorise a person to be a ‘prescribed person’ in the case of the Code or an ‘eligible applicant’ in the case of the Act.

106 However, in the Code the persons in relation to whom an order could be sought were limited to those who had taken part or been concerned in the promotion, formation, management, administration or winding up of, or who had otherwise taken part or been concerned in the affairs of a corporation, or who may have been guilty of fraud, negligence, default, breach of trust, breach of duty or other misconduct in relation to the corporation, or who may have been capable of giving information in relation to the promotion, formation, management, administration or winding up of, or otherwise in relation to the affairs of a corporation.

107 In Hamilton v Oades (1989) 166 CLR 486, a person was summoned to be examined under s 541 and during the course of that examination objected to a question on the ground that there were charges pending relating to offences alleged to have been committed by him in his capacity as a director of the company the subject matter of the examination.

108 The Registrar refused to limit the examination and the examinee appealed to a judge of the Supreme Court of New South Wales who dismissed that appeal. He appealed from that judge to the Court of Appeal which unanimously allowed the appeal and made an order that during the pendency of the charges and the criminal trial the examinee not be compelled to answer any questions which might tend to incriminate him or would tend to disclose a defence to those charges.

109 The Court of Appeal held that the examinee had not established any abuse of process on the part of the examiner but exercised what it said was its inherent power to control its own proceedings with the object of avoiding the risk of injustice being caused by such proceedings.

110 An appeal was brought to the High Court.

111 In relation to the purpose of s 541, Mason CJ said (at 497):

‘There are the two important public purposes that the examination is designed to serve. One is to enable the liquidator to gather information which will assist him in the winding up; that involves protecting the interests of creditors. The other is to enable evidence and information to be obtained to support the bringing of criminal charges in connexion with the company’s affairs: Mortimer v. Brown (1970) 122 C.L.R. at pp. 496, 499. Sub-section (2)(a) and (b) emphasizes the high public importance of these purposes. The examination is designed to elicit, among other things, evidence and information relating to the question whether the witness “has been, or may have been, guilty of fraud, negligence, default, breach of trust, breach of duty or other misconduct in relation to” the corporation.’

112 He further said at 497:

“ The cases in which a court has stayed an examination on the grounds now claimed when charges have not been laid are rare. The very purpose of the section is to create a system of discovery, which may cause defences to be disclosed, for the purpose of bringing charges. The section gives to the liquidator rights not possessed by an ordinary litigant: John Arnold (1979) 23 S.A.S.R., at p. 232. In these circumstances it must be accepted that the section applies equally to proceedings which the liquidator “might be able to bring, proceedings he contemplates bringing, proceedings he has decided to bring, and proceedings he has already brought”: Re Hugh J. Roberts Pty. Ltd. (1970) 91 W.N. (N.S.W.) 537, at p. 541; Re Norman Baker Pty Ltd.; Ex parte Hillman [1982] W.A.R. 349, at pp. 351-352; Re Nalanda Pty Ltd. [1983] 1 Qd R. 269 at p. 271. To adopt the language of Kitto J. in Mortimer v Brown (1970) 122 C.L.R., at p. 496, to hold otherwise “would render the provision relatively valueless in the very cases which call most loudly for investigation”.’

113 Mason CJ, however, made it clear that the Court had not thereby abrogated its inherent powers to control the proceedings. He said, at 498:

‘ The court retains its power to give directions and to restrain questions in cases where the examination is being conducted for an improper purpose or constitutes an abuse of process: s. 541(5). Thus if a liquidator were to conduct an examination directed to compel the examinee to disclose defences or to give pre-trial discovery, or to establish guilt, this examination may be restrained as an abuse of process: Hugh J. Roberts (1970) 91 W.N. (NSW), at p. 541; Huston v. Costigan (1982) 45 A.L.R. 559, at p. 563; Re Gordon (1988) 18 F.C.R. 366.’

114 Dawson J held that s 541 itself provided controls which could be exercised to safeguard an examinee against the use of the section in an oppressive or unjust way. Toohey J was also of the opinion that there was sufficient power within s 541 itself to control examination so as to protect an examinee against oppression or injustice.

115 Mason CJ’s reference to the purpose of examinations was cited with approval by Brennan CJ and Toohey J in Gould v Brown (1998) 193 CLR 346 at 387, which concerned, amongst other things, the validity of s 596A and s 596B.

116 The two purposes identified by Mason CJ are not necessarily the only purposes for which s 596B has been enacted. Mason CJ was considering the purposes of the Code where the prescribed person was a liquidator. He did not consider the section’s purposes in the circumstances of an Official Manager seeking an order. Having regard to those who are now entitled to be an ‘eligible applicant’ under the Act, the first purpose identified by Mason CJ would not be limited to circumstances where a liquidator is gathering information to assist in the winding up and only protecting creditors.

117 As already noticed, s 597(4) of the Act provides that the examination will take place in public except to the extent to which the Court considers that, by reason of special circumstances, it is desirable to hold the examination in private. Section 597(13) empowers the Court to require the examination to be recorded in writing and to require the examinee to sign that written record.

118 Section 597(14A) allows any member of the public to inspect the written record on payment of the prescribed fee. The person who applied for the examination, and any officer or creditor of the corporation, may inspect without fee. Those subsections indicate other purposes of the legislation, first, being to enable the public to know how corporations are being managed and secondly, to achieve the deterrent effect of a public examination. In Southern Cross Petroleum Sales (SA) Pty Ltd (in liq) v Hirsch (1998) 70 SASR 527 at 534, I said:

‘The third purpose for which the legislation exists is for the public interest in assisting the regulation of corporations. The legislation acts to remind those who act as examinable officers of the corporation, or who deal with a corporation, that they are at risk that, if any of the circumstances giving rise to an application by an eligible applicant arise, they may be called upon to be publicly examined about their conduct in relation to the corporation. It is in the public interest that those who act as examinable officers of corporations and those who take part or are concerned in the examinable affairs of a corporation are obliged to impart their knowledge of the affairs of the corporation in the event that the corporation becomes subject to administration or winding up. In that sense the legislation serves the public interest as well as the private interest of creditors. “The honest conduct of the affairs of companies is a matter of great public concern today”: see Rees v Kratzmann (1965) 114 CLR 63 at 80 per Windeyer J.’

119 Any purpose that will benefit the company, its creditors, its members or the public generally will be within the contemplation of the section.

120 In Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69 (‘Re Excel’), the Full Court of the Federal Court considered s 597 of the Corporations Law as it was prior to the enactment of the 1992 Act.

121 The relevant subsections of s 597 were then in the following form:

‘597(1) In this section, a reference, in relation to a corporation, to a prescribed person, is a reference to an official manager, liquidator or provisional liquidator of the corporation or to any other person authorised by the Commission to make applications under this section or to make an application under this section in relation to that corporation.

597(2) Where it appears to the Commission or to a prescribed person that:

(b) a person may be capable of giving information in relation to the promotion, formation, management, administration or winding up of, or otherwise in relation to affairs of, a corporation;

the Commission or prescribed person may apply to the Court for an order under this section in relation to the person.’

122 Section 597 was, to all intents and purposes, in the same terms as s 541 and therefore not relevantly different from s 596B. There was no equivalent to s 596A. ‘Prescribed person’ included a liquidator, a provisional liquidator and an official manager and ‘any other person authorized by the Commission to make applications under this section or to make an application under this section’. An official manager was a person appointed under Part 5.3 of the Corporations Law.

123 Prior to the 1992 Act, Part 5.3 of the Corporations Law provided for a system of external administration by way of official management. An official manager could be appointed at the instigation of the corporation’s directors: s 436(1) or by resolution of the corporation’s creditors: s 439(1). The effect of a resolution placing a corporation under official management by the creditors of the corporation was that the directors ceased to hold office and the official manager would assume the management of the corporation and exercise all the powers of the directors for the period specified in the creditors’ resolution: s 442(1). The duties of the official manager included taking into his or her control all the property to which the company was entitled and conducting the business and management of the company in such a manner as was most economical and most beneficial to the interests of the members and creditors: s 448(1)(a) and (b). Official management was a more cumbersome and less sophisticated form of external management than the administrations provided for in the 1992 Act.

124 The important point is that the Law, prior to the 1992 Act, empowered an official manager to apply for an order under s 597 and in that sense was not relevantly different from the provisions of the Act as they now stand.

125 The Commission, which under the Law was the Australian Securities Commission (s 9 of the Corporations Law), could authorise a party or parties generally to make applications under s 597 or it could authorise a particular party to make an application under the section. Thus, it could authorise a receiver (as it did in Re Excel) or a creditor (as was contemplated in Re Excel) to make application under the section. The Law did not prior to the 1992 Act have an equivalent of s 596A.

126 If the prescribed person, for the purpose of s 597(1) of the Law, was an official manager or a person authorised by the Commission, that person could apply for an order under s 597 even though the corporation was not in liquidation or in the case of a person authorised by the Commission, in any form of administration. The corporation did not need to be in any form of administration for the Australian Securities Commission to make an application and obtain an order. The criteria that had to be satisfied were those in s 597(2) and, of course, paragraphs (a) and (b) were alternatives. The Australian Securities Commission could authorise a creditor to make an application. Again, if that had been done, there was no need for the corporation to be in any form of administration and, in particular, in liquidation.

127 In Re Excel, the Australian Securities Commission had authorised the receiver and manager of the company, who had been appointed by the trustee of the debenture holders, to make application under s 597. The receiver sought and obtained an order for the examination of Mr Worthley, a partner in the firm of accountants who were the company’s auditors. On the same day as that order was obtained the trustee and debenture holders commenced proceedings against Mr Worthley claiming damages for losses said to have been occasioned by reason of Mr Worthley’s negligent audit.

128 The question before the trial judge and before the Full Court on appeal was whether the receiver should be required to disclose the contents of his affidavit filed in support of his application for the order for examination. The trial judge refused to require the receiver to disclose the affidavit. Mr Worthley appealed.

129 The Court said at 89:

‘ It is apparent that the question whether there is, in a particular case, an abuse of process will be a question which will depend upon the purpose of the applicant seeking the order of the court and the circumstances of the case. For an abuse to be found it will be necessary that the offensive purpose be, at the least, the predominant purpose: see Burns Philp & Co Ltd v Murphy … at 732 and Williams v Spautz … at 529.’

130 The Court then referred to the divergence in opinion between the English authorities and the Australian authorities, and said at 90:

‘ The Australian jurisprudence eschews the English distinction in favour of the more useful test of whether the person seeking the examination order has the purpose of obtaining a forensic advantage not otherwise available …’

131 At 91, the Court said:

‘ Whether there will be, in a particular case, a use of the process or an abuse of it will depend upon purpose rather than result. The consequence of an examination may well be that the examiner has conducted a “dress rehearsal” of cross-examination which may take place in a subsequent trial. The fact that the trial has commenced, or is contemplated, may throw light upon the purpose. But merely because other proceedings had been commenced or are contemplated would not involve, of itself, an abuse of process. This follows having regard to the nature of the investigative process which could throw light on the question, inter alia, whether there was evidence which would warrant a liquidator, for example, proceeding against an examinee. But it may be quite a different question where proceedings contemplated or instituted are not proceedings to be brought by the company, but proceedings brought by some other party for the advantage of that party rather than the company. For example, it would be an abuse of process for a creditor approved by the Commission for the purposes of s 597(1) to obtain an examination summons to conduct an examination for the purpose of obtaining evidence in proceedings which the creditor proposed to bring against the examinee for defamation. That would be a purpose completely foreign to the power of examination which is ultimately in aid of the company itself and not the personal advantage of the person seeking to conduct the examination.’ (Emphasis added.)

132 The appellants in these appeals, of course, relied upon the dicta contained in the emphasised passages.

133 They argued that the purpose of conducting this examination is not for the benefit of the company. It is simply for the benefit of the respondent in order to provide evidence to the respondent, so that the respondent might bring proceedings against either the examinees or the company or Freehills.

134 It was contended that it is an abuse of the examination process because it is foreign to the power of examination to conduct an examination for the aid of a single creditor.

135 The appellants argued that not only was the purpose not for the benefit of the company but in some respects, alien to the company.

136 It is necessary to further consider the Court’s reasons in Re Excel.

137 In Re Excel, the Court referred to the decision of the Supreme Court of New South Wales in Re Laurie, which was a case in which a liquidator was funded by a substantial creditor, who had threatened proceedings against the examinee who was a director of the company in liquidation. The liquidator wished to conduct an examination to determine whether, when the debt was incurred, there were no reasonable grounds to expect that the company would be able to pay all of its debts as and when they became due.

138 After noting that the Court in Re Laurie had refused to set aside the examination summons, the Court said at 92-93:

‘ The applicant for an examination order in Re Laurie Cottier Productions Pty Ltd was, as has already been observed, not the creditor. Nevertheless, there could be no objection to the use of the examination procedure on application by a creditor whose purpose was to ensure that his or her debt was paid. After all, if the creditor were unsecured the interests of that creditor are no different from the interests of all other creditors who share rateably in the distributable assets of the company. Even in a case where the creditor was a secured creditor, the fact that the purpose of the examination was to aid the ultimate recovery of the secured debt, by, for example, the ascertaining of the existence of assets, would operate to the benefit of the company by ensuring that it paid out the secured creditors and that there was then revealed what other assets (if any) were available for distribution to unsecured creditors.

…

This notwithstanding, we are of the view that the use of the power to obtain an examination summons for the principal purpose of furthering the cause of the applicant for the summons or, as in this case, appointor of the applicant in litigation against third parties, not for the benefit of the corporation, its contributories or creditors (other than in the most indirect way) is a use of the power for a purpose foreign to that power and thus an abuse of the power. Such a purpose would provide to the examiner the opportunity for pre-trial depositions which would not be available in the litigation.’

139 It cannot be overlooked that Re Excel was concerned with access to information. It did not decide any more than in the circumstances of the case the proposed examinee should be entitled to have access to the affidavit filed in support of the Receiver’s application for the order and should be entitled to issue subpoenas to obtain further information.

140 However, that said, the Court did decide that it would be an abuse of the Court’s processes, by misusing the power to obtain an examination summons, if the summons were obtained not for the benefit of the corporation, its contributories or creditors but only for the benefit of the prescribed person to be used in other litigation.

141 It also decided that it was not necessarily an abuse for either an unsecured creditor or a secured creditor to use the procedure for the purpose of recovering the unsecured or secured debt.

142 In the case of the unsecured creditor, the Court decided that the interests of all unsecured creditors would be served because they would share rateably. In the case of the secured creditor, the Court decided that, if the secured creditor were conducting the examination for the purpose of recovering the secured debt by ascertaining the existence of other assets, the corporation would benefit by ensuring that it paid out the secured creditor thereby revealing what other assets were available to the unsecured creditors.

143 In my opinion, Re Excel stands for the proposition that it is an abuse of process to use the Part 5.9 procedure if the predominant purpose of the applicant seeking the order is not for the purpose of benefiting the corporation, its contributories or its creditors.

144 If the party seeking the examination summons is doing so for any number of purposes, which do not include the purpose of benefiting the corporation, then that would amount to an abuse. On the other hand, if the party seeking the examination summons has as one purpose the achievement of a benefit to that party but has also a further purpose which is for the benefit of the corporation then the use of the Part 5.9 procedure will not be an abuse of process.

145 The 1992 Act repealed subsections 597(1), (2) and (3) and enacted ss 596A, 596B, 596C and 596D. The differences have already been addressed.

146 The Full Court of the Supreme Court of Western Australia first considered the breadth of s 596A and s 596B of the Law in Douglas-Brown v Furzer (1994) 13 ACSR 184. As already mentioned, those subsections were not relevantly different from s 596A and s 596B of the Act.

147 In that case, a creditor of the company in liquidation financed a liquidator for the purpose of examining the respondent who was an employee of another company which had dealt with the company in liquidation. The respondent, it was asserted, had knowledge of the affairs of the company in liquidation and, it was thought, was able to provide confirmation of the manner in which the company in liquidation had carried on its business. The creditor had already commenced proceedings against the respondent and his employer. An order was made pursuant to s 596B for the respondent’s examination but a Master ordered that the examination be recorded but not transcribed. The order was made to prevent the creditor obtaining an advantage from the examination.

148 The liquidator sought leave to appeal. Malcolm CJ (Ipp and Anderson JJ agreeing) said at 189:

‘ The current provisions in the Corporations Law are the result of substantial amendments introduced in 1992. The predecessor to s 596A and s 596B was s 541 of the Companies (Western Australia) Code (the Companies Code). Section 541(2) provided that a “prescribed person”, namely an official manager, liquidator or provisional liquidator of a corporation, or any person authorised by the National Companies and Securities Commission, may make application to the court for an order for examination. A creditor was not an eligible applicant under s 541. It is clear that a creditor would now be an eligible applicant under s 596B of the Corporations Law.’

149 It is not clear why his Honour omitted reference to s 597 of the Law as it stood immediately before the 1992 Act to which he referred but, because s 597 of the Law was not materially different from s 541 of the Code, nothing may turn upon that omission. Malcolm CJ said at 191:

‘In my opinion, the provisions of sections 596A, 596B and 597 now put liquidators and individual creditors on the same footing insofar as an examination is concerned. The Court retains its power to prevent injustice because it retains its power to give directions and restrain questions whether the examination is being conducted for an improper purpose or constitutes an abuse of power.’

150 Putting aside the omission of a reference to s 597 of the Law, that statement, with respect, is not entirely accurate. A creditor was not a ‘prescribed person’ under the Code or the Law. Before the 1992 Act the Law provided that a creditor could become a ‘prescribed person’ if authorised by the Commission.

151 After the 1992 Act the position under the Law was the same as it is now under the Act. A creditor is not an ‘eligible applicant’ under the Act. A creditor can become an ‘eligible applicant’ if authorised by ASIC.

152 It follows that it is not right to say that ss 596A, 596B and 597 put liquidators and creditors on the same footing. Liquidators, by reason of their office, are eligible applicants. Creditors are only eligible applicants if authorised by ASIC. ASIC would only authorise creditors to be eligible applicants if that were appropriate having regard to its own charter under the Act which constitutes it.

153 A creditor’s position, so far as concerns the right to seek to summon a person, did not change with the enactment of ss 596A or 596B. Under both the old and new regime a creditor only became entitled to summon a person if authorised by the regulatory authority.

154 The new sections and, in particular, s 596B were considered by a Full Court of the Supreme Court of Victoria in Flanders v Beatty (1995) 16 ACSR 324. In that case, the Brashs Group relevantly included Brashs Pty Ltd and Brash Holdings Ltd. In 1994 the Brashs Group became insolvent and administrators (the respondents to the appeal) were appointed to each of the companies pursuant to s 436A of the Act. The creditors resolved that each company should execute a deed of company arrangement. Each company executed a deed. The deeds were not identical but, relevantly, the companies assigned to the deed administrators a number of choses in action including a chose in action for breach of fiduciary duty or other duties by its auditors.

155 Ormiston J said at 332 that the enactment of s 596A and s 596B by the 1992 Act ‘has radically altered the scope of, and procedure relating to, examinations, albeit that the subject matter of an examination is little altered so far as the company itself is concerned’.

156 He gave three instances of the alteration. First, the new sections extended the class of persons who might apply for an examination summons. Secondly, the examinable affairs of the company had been extended to include business affairs and business affairs of connected entities. Thirdly, s 596A was mandatory in its terms.

157 His Honour said that the previous decisions had to be understood having regard to the new regime which formed part of the 1992 Act.

158 Ormiston J continued at 332:

‘For present purposes the critical change is the expansion of the class of persons who may be an “eligible applicant” …’.

159 After referring to the definition of eligible applicant in s 9 of the Corporations Law he said:

‘It can be seen that this class has not been greatly expanded from that of prescribed persons under the unamended s 597(1), except to the extent that administrators are now added, including the administrators of deeds of company arrangements. Moreover it is important to note that, except to the extent that the Commission may authorise any person to apply for the issue of a summons, administrators are the only additional eligible applicants who may seek the issue of a summons for examination as of course under s 596A or a discretionary order under s 596B. In my opinion, whatever has been said in the past as to the scope of compulsory examinations must be qualified by these significant changes in the relevant provisions, at least to the extent necessary to comprehend their effect. As these amendments form part of the Corporate Law Reform Act 1992, which introduced Part 5.3A of the Law, I would conclude that the legislature saw it as important that administrators should have wide powers to obtain information and conduct any necessary examination, in much the same way as those powers were and are still given to liquidators. However, the significance of granting these powers to administrators is that the object for which they ought properly be used should comprehend anything which fairly may be expected to advance the course of an administration, and in particular, for present purposes, an administration under a deed of company arrangement. Indeed one would doubt, having regard to the tight time-table ordinarily required under the scheme of Part 5.3A of the law before a deed is executed, that many administrators appointed pursuant to s 436A would wish, or have the opportunity, to avail themselves of the powers given under ss 596A or 596B, unless they were also subsequently appointed as administrators under a deed.’

160 As I have already observed, the 1992 Act amending the Law replaced the external administration of official management with administration and with administration of a company’s affairs with a view to executing a deed of company arrangement.

161 It was necessary, therefore, to make consequential changes to Part 5.9 to delete reference to an official manager and to include the new form of external administration provided for in Part 5.3A.

162 The substitution of administrators and administrators of a deed of company arrangement for official managers merely recognised the changes in the kinds of external management provided for by the 1992 Act.

163 The Explanatory Memorandum which the Attorney-General, Mr Duffy, tabled at the conclusion of his second reading speech on the Corporate Law Reform Bill, which became the 1992 Act, states:

‘ “eligible applicant”

344. The proposed definition of “eligible applicant” sets out the persons who may apply under proposed sections 596A and 596B for the examination of a person about a corporation. The list of persons is similar to the list in existing subsection 597(1), except that an administrator of a corporation and an administrator of a deed of company arrangement, who may be appointed under the new administration procedure proposed by Part 5.3A, have been added. In the light of the proposed repeal of the official management procedure currently provided by Part 5.3, official managers have been omitted from the list of eligible applicants.’

164 It seems to me, with respect, that the changes to which Ormiston J refers do not indicate so much an expansion of the class of persons who might seek an order under Part 5.9 but merely recognise the different forms of external administration in the 1992 Act.

165 Section 597, prior to the 1992 Act, permitted the then regulatory authority to authorise any person to make an application under that section. The same was the case after the 1992 Act. There is nothing in the inclusion in the definition of ‘eligible applicant’ of a person so authorised which supports a conclusion that the class of persons who may apply for an examination summons has been widened.

166 I cannot therefore agree that a wider class of persons authorised to make applications under s 596A and s 596B has been identified so as to make the decisions and the dicta in previous cases under s 597 subject to any qualification.

167 Ormiston J then considered the purpose to be served by giving power to administrators under deeds to apply for orders for the examination of examinable officers. He said at 333:

‘In my opinion that purpose, shortly, is to enable the prompt and effective carrying out of the scheme contained in a deed of company administration. Any proper inquiry into the “examinable affairs” of the corporation which will fairly conduce to that end may be affected by an examination sought by such an administrator. On the other hand, if the examination be sought for private purposes, oppressively or for any purpose not genuinely related to the administration, then a person adversely affected can complain to the court that the relevant power is being used for purposes foreign to those for which it is conferred. But, bearing in mind the variety of company arrangements which are now permitted under the Law, an examination intended to assist the enforcement of the rights or claims of relatively few persons affected by an arrangement may nevertheless be proper and appropriate. The legislature, it would seem, has acknowledged the benefits that deeds of this kind can provide to both companies and creditors and has therefore given explicit power to administrators to apply for examinations upon the same basis as liquidators have applied in the past, but with the added benefits of the new procedures laid down in the 1992 amendments.’

168 Part 5.3A of the Corporations Law which, prior to 1992, dealt with official management, was repealed by the 1992 Act and a new Part 5.3A was inserted. There are no relevant differences between Part 5.3A of the Corporations Law and Part 5.3A of the Act.

169 Part 5.3A is headed ‘Administration of a company’s affairs with a view to executing a deed of company arrangement’.

170 Section 436A empowers a company to appoint an administrator of the company if the directors have resolved that the company is insolvent or likely to become insolvent at some future time and an administrator should be appointed. Section 436B entitles a liquidator to appoint an administrator to the company and the liquidator may appoint himself or herself. Section 436C permits a person who is entitled to enforce a charge on the whole or substantially the whole of the company’s property to appoint an administrator.

171 Once appointed, the administrator must convene a meeting of the company’s creditors in order to determine whether to appoint a committee of creditors and, if so, who are to be the committee’s members: s 436E.

172 At that meeting, the company’s creditors may, by resolution, remove the administrator from office and appoint someone else as administrator of the company: s 436E(4).

173 Whilst the company is under administration the administrator has control of the company’s property and affairs and may carry on the business and manage that property and those affairs: s 437A.

174 Section 438A obliges the administrator, as soon as practicable after his or her appointment, to investigate the company’s business, property, affairs and financial circumstances and to form an opinion about whether it would be in the interests of the company’s creditors for the company to execute a deed of company arrangement; whether it would be in the creditors’ interests for the administration to end; and whether it would be in the creditors’ interests for the company to be wound up.

175 Within 21 days of the administration beginning, the administrator must convene a meeting of the company’s creditors: s 439A(1).

176 At that meeting, the creditors may resolve that the company execute a deed of company arrangement or that the administration should end or that the company be wound up: s 439C.

177 Where the creditors resolve that the company execute a deed of arrangement, the administrator becomes the administrator of the deed unless the creditors otherwise resolve: s 444A(2). The administrator then has an obligation to prepare an instrument setting out the terms of the deed which must include the following:

‘444A(4) The instrument must also specify the following:

(a) the administrator of the deed;

(b) the property of the company (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors’ claims;

(d) to what extent the company is to be released from its debts;

(e) the conditions (if any) for the deed to come into operation;

(f) the conditions (if any) for the deed to continue in operation;

(g) the circumstances in which the deed terminates;

(h) the order in which proceeds of realising the property referred to in paragraph (b) are to be distributed among creditors bound by the deed;

(i) the day (not later than the day when the administration began) on or before which claims must have arisen if they are to be admissible under the deed.’

178 Once executed, the deed of company arrangement binds all creditors and a person bound by the deed cannot make an application for an order to wind up the company: s 444D and s 444E.

179 A deed may terminate by operation of the deed itself; by resolution of the company’s creditors; or by court order: s 445C.

180 The purpose of Part 5.3A is to provide a form of external administration which commences with the appointment of an administrator and concludes with a deed of company arrangement. The intention of the legislation is that the company should move from administration to administration under a deed of company arrangement.

181 In the Explanatory Memorandum it was stated:

‘444. The proposed new Part 5.3A will provide for an administrator to take over the affairs of a company, with a view to developing a “deed of company arrangement”, under which the company might be restored to financial health. Proposed amendments to section 9 will define “administrator” to mean either the administrator initially appointed to take over the affairs of the company or the person who administers the deed of company arrangement. The person who administers the deed of company arrangement (who will be appointed by the company’s creditors) may be the same person as the person initially appointed to take over the affairs of the company (who will be appointed by the directors, the liquidator or a major creditor of the company), but this need not necessarily be the case.

445. Proposed Part 5.3A will contain 17 Divisions which will deal with all aspects of the administration of a company, the preparation of a deed of company arrangement and the operation of that deed. In particular, the proposed Part will deal with:

· who may appoint an administrator and the first meeting of creditors to appoint a committee of creditors and, where appropriate, to replace the administrator (proposed Division 2);

· the powers and duties of an administrator (proposed Divisions 3 and 4);

· the meeting of creditors which considers the administrator’s recommendation about what should be done with the company (proposed Division 5);

· the protection of the company’s property and the rights of chargees and others, during the period of administration (proposed Divisions 6-8);

· the administrator’s liability and indemnity for the debts incurred during the administration (proposed Division 9);

· the execution and effect of a deed of company arrangement (proposed Division 10); and

· the variation, termination and avoidance of a deed of company arrangement (proposed Division 11).’

182 The 1992 Act amended the definition of ‘externally-administered body corporate’ to delete the reference in paragraph (c) of that definition to official management and to include a new paragraph (c) and paragraph (ca) so that the definition now reads:

‘externally-administered body corporatemeans a body corporate:

(a) that is being wound up; or

(b) in respect of property of which a receiver, or a receiver and manager, has been appointed (whether or not by a court) and is acting; or

(ca) that has executed a deed of company arrangement that has not yet terminated; or

(d) that has entered into a compromise or arrangement with another person the administration of which has not been concluded.’

183 In my opinion, there is nothing remarkable at all about the legislature including administrators and administrators under a deed of company arrangement within the definition of eligible applicant.

184 Indeed, it would have been a defect in the 1992 Act had they not been included. The 1992 Act provided for a system of external administration short of liquidation and not under the control of a receiver to replace an existing form of external administration of the same kind.

185 Because an official manager was a ‘prescribed person’ under the Law prior to the 1992 Act, it was only logical and indeed consistent to include administrators and administrators under a deed of company arrangement as persons who might make application for examination summonses under Part 5.9 of the 1992 Act.

186 Ormiston J said in Flanders v Beatty at 335:

‘ Nevertheless it is unnecessary to doubt the opinion expressed in Worthley’s case that under the unamended provisions of s 597 it was necessary to show that the proposed examination was for the benefit of the corporation, its contributories or its creditors. What is clear, however, is that the scope of the examination provisions was greatly expanded by the 1992 amendments. Though I would doubt that the former section was intended to be constrained by any need to ensure that an examination was for the company’s benefit in the sense of keeping the company alive by paying out its creditors, it was part of a scheme derived from liquidators’ examinations. Liquidators, it is accepted, owe certain duties to the company, whatever be the outcome of the winding up: cf Commissioner for Corporate Affairs v PW Harvey [1980] VR 669 at 691-2 and 695 and the cases there cited.

Now the powers given under s 596A to 597B are clearly so wide and so easily exercised by “eligible applicants’ (cf s 596A) that the purposes to be served by examinations ought not be limited by reference to the benefit of the company or its creditors or contributories. The objects to be served by the issue of an examination summons and the making of orders for examination should be discerned only by reference to the statutory provisions which invest those powers. If those powers are being used for oppressive purposes or to serve ends entirely outside the scope of the sections, such as to gather evidence for libel proceedings, then the court will intervene to prevent the examination. As to the precise ambit of the power of the commission to authorise applications under the new sections, it is unnecessary to express any further opinion.’

187 In my opinion, Ormiston J is right when he said that Re Excel standsfor the proposition that the proposed examination must be for the benefit of the corporation, its contributories or its creditors.

188 I do not, however, with respect, agree that the scope of the examination provisions have been greatly expanded by the 1992 amendments.

189 Ormiston J is undoubtedly correct when he said that the 1992 Act extended the ambit of the inquiry by including in the definition of examinable affairs the business affairs of a connected entity insofar as they are relevant to the examinable affairs of the corporation. However, that matter by itself does not mean that previous decisions bearing upon the purpose of Part 5.9 are no longer relevant.

190 The third matter relied upon by Ormiston J does not support a conclusion that the reach of Part 5.9 has been widened. Part 5.3A and the amendments to Part 5.9 in the 1992 Act were implemented in response to recommendations by the Australian Law Reform Commission in the report on its ‘General Insolvency Inquiry’ (the Harmer Report).

191 The Attorney-General’s Explanatory Memorandum states in relation to s 596A and s 596B:

‘Proposed section 596A – Mandatory examination

1152. A significant difference between the personal bankruptcy and company insolvency examination provisions is that, in bankruptcy, the trustee is entitled to examine the bankrupt without first having to obtain a court order. By contrast, in the winding up of an insolvent company, the liquidator must obtain a court order for an examination under subsection 597(2) of the Corporation Law.

1153. The Harmer Report suggested that the formalities and expense involved in obtaining a court order may be a deterrent to the use of the procedure, and was of the view it would be consistent with the duty on directors of an insolvent company to assist the liquidator in the winding up if the right to examine such a person could be exercised as conveniently and inexpensively as in bankruptcy. It thus recommended that:

— There be provision for the examination without court order of any person who is acting or who has within 2 years immediately before the commencement of the winding up acted in the capacity of a director, secretary, executive officer, administrator, receiver or liquidator of a company that is being wound up in insolvency. (The term used to describe such persons in the proposed amendments is “examinable officers”, which is to be defined in section 9.)

— A liquidator should have express power to require production of documents either from the examinee (the documents might in that case be required in the summons for examination) or by way of an order for production of documents directed to third parties who may have possession of documents relevant to the examination at the time of issue of the summons for such an examination.

1154. Proposed section 596A will provide that the Court is to summon a person for examination about a corporation’s examinable affairs where application for the summons is made by an “eligible applicant” (to be defined in section 9 to mean the ASC, a liquidator or provisional liquidator, an administrator of a corporation, an administrator of deed of company arrangement, or a person authorised by the ASC) and the person is or was, within the previous 2 years, an “examinable officer” (also to be defined in section 9) of the corporation.

1155. The intention is that the Court will issue the summons where it is satisfied that the person’s connection with the company is such that the person is an examinable officer, without the need to inquire further into such matters as whether that person has taken part or been concerned in the examinable affairs of the corporation, been guilty of misconduct in relation to the corporation or is able to give information about examinable affairs of the corporation. It is envisaged that the issue of a summons in such circumstances will be a formality, and that the respective Court rules may provide for execution of the function by a Registrar or equivalent official, where appropriate.

Proposed section 596B – Discretionary examination

1156. This section will implement the Harmer Report’s recommendation that where a person is not within the category of “examinable officer” but may, nonetheless, be able to provide information relating to the affairs of the company, the requirement for an order for examination should be retained.

1157. Proposed subsection (1) will provide for the issue of a summons to a person (other than an “examinable officer”), at the discretion of the Court, in circumstances where the application for a summons is made by an “eligible applicant” (to be defined in section 9) and the Court is satisfied that the person has taken part in, or may be able to give information about the “examinable affairs” (also to be defined in section 9) of the corporation. These requirements will largely replicate existing paragraphs 597(2)(a) and (b), which will be omitted by paragraph 117(a).

1158. Proposed subsection (2) provides that this section will have effect subject to proposed section 596A.’

192 Parliament enacted s 596A to make it easier for an ‘eligible applicant’ to examine ‘examinable officers’ because it wished to simplify the procedure and bring it into line with the bankruptcy procedure. In doing so, it recognised that a corporation’s examinable officers should always be available to eligible applicants for examination under this section.

193 I do not agree that because s 596A is mandatory in its terms the section’s purposes have changed.

194 In my opinion, there is nothing in the 1992 Act which derogates in any way from the underlying assumption in the reasons of the Court in Re Excel that the purpose in seeking the examination summons must be in the interests of the corporation, its creditors or its contributories.

195 The Full Court of the Supreme Court of South Australia has recently considered s 596A and s 596B in Sandhurst Trustees Ltd v Harvey (2004) 88 SASR 519.

196 Normans Wines Ltd (Normans) was a winemaker which, in 1999, invited members of the public to subscribe for convertible unsecured notes. Pursuant to s 1052 of the Act, a trustee for holders of the notes was appointed in accordance with a complying trust deed: s 1054. A prospectus was to issue in connection with the invitation. The note holders’ trustee was Sandhurst Trustees Ltd (Sandhurst). Sandhurst’s obligations under the Act were to protect the interests of the note holders.

197 Deloitte Touche Tohmatsu (Deloitte) was retained as Normans’ auditor, on the appellant’s case, to audit Normans’ accounts, financial statements and reports required of Normans under the deed and to provide an opinion whether any relevant financial information had come to light which was not included in the prospectus. Deloitte was required to consider whether Normans’ were likely to be able to meet interest obligations.

198 In 2001, Normans went into liquidation with no prospects for the note holders recovering the monies owed to them.

199 Sandhurst commenced proceedings in September 2002 claiming that Deloitte had owed a duty of care to Sandhurst, as trustee for the note holders, which was breached by Deloitte’s failure to report on certain matters and its omission of relevant information from the prospectus.

200 On 18 June 2003 ASIC authorised Sandhurst to make application under Part 5.9 of the Act in relation to Normans. On 23 June 2003 Sandhurst sought to examine two employees of Deloitte, Ms Flower and Mr Harvey (the examinees) under s 596B of the Act and on that day a Master of the Court made an order for their examination and the production of certain documents. No order could have been made under s 596A because the examinees were not ‘examinable officers’.

201 On 26 June 2003 the examinees applied for an order setting aside the examination orders. A Master of the Court made that order on the ground that Sandhurst was not authorised by the provisions of the trust deed to apply for examination orders.

202 Sandhurst appealed to the Full Court of the Supreme Court of South Australia.

203 The central issue identified by Doyle CJ on appeal was the scope of the discretion conferred by s 596B of the Act and whether there were sufficient circumstances to warrant the issue of summonses pursuant to that discretion.

204 Doyle CJ particularised the parties’ contentions. In doing so, he identified at 525 [26] one of the respondent examiners’ arguments (the other arguments are not relevant to this case):

‘His second submission was that even if Sandhurst had an arguable cause of action, the power conferred by s 596B is not able to be exercised for the sole or predominant purpose of assisting a single creditor or class of creditors (the note-holders or Sandhurst, if Sandhurst in fact had suffered a loss), there being (according to the submission) no benefit to the corporation with which Deloitte dealt or whose examinable affairs were the subject of inquiry (Normans), and no benefit to its contributories or creditors generally. He submitted that an examination order made simply to advance the interest of a particular creditor or class of creditors was made for a purpose foreign to the power conferred by s 596B.’

205 He referred to the differences between s 596A and s 596B and previous decisions including Re Excel and Flanders v Beatty, and said at 526 [32]:

‘ The statutory provisions as they now stand are wider in their reach than their predecessors. The nature of the recent changes in these provisions is conveniently summarised by Ormiston J, with whom the other members of the Full Court of the Supreme Court of Victoria agreed, in Flanders (at 331-332) as follows:

Undoubtedly the scheme for compulsory examination forms, and has for over 150 years formed, part of the law relating to companies and, now, “corporations”. What originally was a means for obtaining information in the course of a liquidation as to a company’s affairs by means of a private examination was expanded over the years, as a response to notorious company frauds in the 1890s and 1960s, by giving similar powers in a variety of circumstances to seek examinations, usually held in public, as to the conduct of officers and others suspected of fraud, breach of trust and other misconduct: see the examination by this Court of the history of the relevant sections up to and including the merged provisions of s 541 of the Companies Code in Friedrich v Herald & Weekly Times Ltd [1990] VR 995, especially at 999-1004.

In the short period since that decision, the provisions relating to examinations have been twice re-stated, though in relation to s 597 of the Law in its original form almost all of what was said by the court in Friedrich’s case, and by the High Court in Hamilton v Oades (1989) 166 CLR 486, still remained applicable. However, what remains of s 597 and what is contained in the new s 596A to s 596F and s 597A and s 597B, as amended and inserted (respectively) by the Corporate Law Reform Act 1992, has radically altered the scope of, and procedure relating to, examinations, albeit that the subject matter of an examination is little altered so far as the company itself is concerned. In the first place, the range of possible applicants has been extended. Secondly, the new definition of “examinable affairs” includes the “affairs” of the corporation but has now been extended to cover the “business affairs” of “connected entities”, although the definition of “affairs” in s 53 is barely altered and in fact was and is little different from the definition contained in s 6 of the Code.

Thirdly, it may be said that the principal change effected by these amended provisions is that an “eligible applicant” now may obtain as of right an order for the issue of a summons for the examination of any “examinable officer” (widely defined) of a corporation who is shown to have held office within two years of the commencement of the administration or winding up: s 596A. Alternatively, in respect of any other person (or any examinable officer who held office before the two-year period), the court is given a discretion, expressed in not dissimilar terms to that given by the former s 597(2), to order that such a summons for examination do issue if satisfied that the person has been or may have been guilty of “misconduct” (defined to include fraud, negligence and breach of duty) in relation to a corporation or otherwise may be able to give information about the “examinable affairs” of a corporation: s 596B.’

206 For reasons already given, I do not agree that the statutory provisions are now wider in their reach than their predecessors except to the narrow extent already mentioned by including ‘business affairs’ in ‘examinable affairs’. I do not think that the first of Ormiston J’s reasons is correct having regard to the 1992 Act. I have already said that a corporation’s examinable affairs are wider than under the Corporations Law when ‘affairs’ was the criterion. The third matter is one of procedure only.

207 Doyle CJ continued at [32] on 527:

‘As I have just observed … the purpose for which the power is conferred is indicated by the provisions of s 596B(1)(b), although indicated only in general terms. In a loose sense, the purpose can be said to be the gathering of information about the matters referred to in subcll (i) and (ii).’

208 There can be no doubt that s 596B(1)(b) assists in determining the purpose for which the power is given. However, that subsection cannot be considered in a vacuum. Section 596B(1)(b) identifies the information that may be gathered but does not by itself indicate the purpose to which the information is to be applied. The purpose for which the powers are given in both s 596A and s 596B must be gleaned from previous provisions of the same kind; various amendments to the legislation; the definitions of ‘eligible applicants’ and ‘examinable affairs’; and the whole of Part 5.9.

209 Certainly, s 596B(1)(b)(i) indicates that one purpose is to summon for examination any person who has taken part in the corporation’s examinable affairs and may have been guilty of misconduct.

210 Misconduct includes fraud, negligence, default, breach of trust and breach of duty. The misconduct there contemplated is the misconduct of that person in relation to the corporation not in relation to a third party: s 596B(1)(b)(i). The purpose of that sub-paragraph when considered with the other matters is to make that person available to ASIC or some other appropriate ‘eligible applicant’ so that the person might be examined about his or her misconduct insofar as it has affected, or might affect, the corporation. It must be remembered that both s 596A and s 596B empower the Court to order a person to be summoned ‘for examination about a corporation’s examinable affairs’.

211 It is the corporation’s ‘examinable affairs’ about which the examinable officer or other person is to be examined. In s 596B(1)(b)(i), the person is liable to be summoned if that person has taken part or been concerned in examinable affairs of the corporation and has been or may have been guilty of misconduct in relation to the corporation.

212 Therefore, the purpose of the examination identified under s 596B(1)(b)(i) is to empower an eligible applicant to examine that person about the corporation’s examinable affairs.

213 Of course, in many cases, an examination of the examinable officer or other person in relation to the examinable affairs of the corporation will mean inquiring into the corporation’s dealings with third parties.

214 However, it must not be overlooked that the purpose of the power is to inquire into the examinable affairs of the corporation.

215 Section 596B(1)(b)(ii) also empowers the Court to summon a person for examination about the corporation’s examinable affairs if that person may be able to give information about examinable affairs of the corporation.

216 In that case, as under s 596B(1)(b)(i), the purpose of the inquiry is in relation to the examinable affairs of the corporation.

217 The power is not given for the purpose of enabling a third party to examine that person to determine whether that person has been guilty of misconduct directed to a third party.

218 Sub-paragraph 596B(1)(b)(i) is directed to allowing the company, through its appropriate external manager, ASIC or some appropriate person authorised by ASIC to inquire into that person’s conduct in relation to the corporation.

219 After considering the authorities, to which I have referred, Doyle CJ said in Sandhurst Trustees v Harvey at 531-532:

‘This line of decisions establishes that the discretion conferred by s 596B is a wide one. It is to be exercised to enable inquiry to be made into the examinable affairs of a corporation, with a view to exposing misconduct (which might attract civil or criminal sanctions, or possibly action by a body such as a professional regulator) or which might provide information that will advance (in a broad sense) the external administration of the corporation in question.

The fact that a consequence of an examination order may be a forensic advantage to a particular class of creditors, or to a particular creditor, of the corporation, or to a particular person, does not of itself lead to the conclusion that the order was not made for a proper purpose. Nor does the fact that the order was made at the instance of that person or creditor. On the other hand, the power is not conferred with a view to its exercise solely to benefit an individual with a claim of some kind against the corporation in question, or with a claim arising out of its affairs. Nor, I consider, is it conferred to enable an applicant for an order to pursue an inquiry into a matter in relation to which the applicant has no legitimate interest.’

220 I agree with those observations. Particularly, I agree that the discretion conferred by s 596B is to provide information to an eligible applicant, in the case of ASIC, with a view to exposing misconduct and, in the case of other eligible applicants, to provide information that will advance the external administration of the corporation.

221 I agree that the consequences to which Doyle CJ has referred do not mean that the examination summons has been sought for an improper purpose.

222 I also agree that the power is not conferred for the benefit of any individual creditor who seeks to advance his or her own interests without any regard for the corporation’s interests.

223 In Sandhurst the Court held that the examinations had been properly ordered. An examination with a view to determining whether Deloitte was in breach of duty to Normans was a purpose which fell within the intended operation of s 596B, for the following reasons:

The examination might expose misconduct by Deloitte or members of that firm of legitimate interest to ASIC. Sandhurst, as trustee under the relevant deed, had an interest in exposing such conduct if it had caused Normans to breach covenants and cause loss to note holders.

The examination might provide evidence founding the basis of a claim by Normans against Deloitte or by note holders against Deloitte.

The examination might enable Sandhurst to advise note holders whether the principal proceedings should go forth or be amended and whether note holders should bring their own actions. Sections 1056(6) and 1057 of the Corporations Law contemplated a trustee for debenture holders taking action to protect the interests of debenture holders.

Sandhurst was also discharging a statutory function with a view to taking action which may ultimately benefit the contributories or creditors of Normans in a winding up.

A proper concern of the liquidator would be whether borrowings by Normans had been properly undertaken – information disclosed in the examinations could have a bearing on this.

224 Doyle CJ said that it was not altogether clear whether the action by Sandhurst against Deloitte raised a cause of action that was trust property. He also said that, as the claim was presently articulated, it was unlikely the matter could succeed and, on that basis, the action provided only a tenuous foundation for orders under s 596B.

225 Santow J was called upon to consider the provisions of Part 5.9 in In Re New Cap Reinsurance Corporation Holdings Ltd [2001] NSWSC 835.

226 In that case, a creditor of a company in liquidation applied for access to documents elicited from a liquidator’s compulsory examination in order to assist the creditor in proceedings against the company and associated defendants.

227 In January 1999, the subject corporation issued $50 million worth of unsecured convertible notes. Shortly thereafter provisional liquidators were appointed.

228 The liquidators began inquiring into omissions by directors, other company officers and due diligence advisers to include accurate financial information in the prospectus which accompanied the note issue.

229 In the course of their investigations, numerous examinations were conducted and many documents were produced by parties involved in the note issue.

230 A notice of motion was filed by creditors (as a result of the note issue) seeking access to some of the documents produced, for the purpose of litigation against the relevant examinees or the companies with which they were associated.

231 In considering the application for production, Santow J said at [2]:

‘Much of the argument turns on whether the post 1992 statutory amendments, expanding the role of creditors in such examinations, support such access. Invoked by the claimant creditor is the enhanced power of liquidators to order such examinations, which is said to carry as a corollary the availability of access to a third party creditor. That power is reinforced by the now well established judicial willingness to uphold “the opinions of liquidators who state they have proper grounds for making enquiries”, giving them “almost overwhelming weight”; Re Ezishop.net; Sims v Stone (2001) 38 ACSR 349 at 353 per Young CJ in Eq. The examinees and their companies contend that there is no such corollary, that access must or may be extended to a third party creditor pursuing its own litigation for its own ends; that this would be a bridge too far.’

232 Santow J considered the decision of the Full Court of the Supreme Court of Western Australia in Douglas-Brown v Furzer (1994) 13 ACSR 184 noting that Malcolm CJ had erred where he said that creditors became eligible applicants following the 1992 Act. However, he said:

‘14. … That legislative intention to facilitate prosecution of, inter alia, civil proceedings, is thus conferred not only on “eligible applicants” as defined but on other relevant persons. These I consider include, importantly, creditors bringing, or considering whether to bring, proceeding against both the company in liquidation (whose prosecution a winding-up may interrupt) and also those associated with the Company in relation to the subject matter of the proceedings, such as actual or potential co-defendants, as here. Obtaining the fruits of the liquidator’s own investigation for that purpose is thus not an illegitimate or collateral purpose but a proper one.

15. … First, such a creditor’s action against a third party, who is not the company in liquidation though likely to be associated in the relevant events, must in some way have the potential, at least, either to assist the liquidation (in the sense of the beneficial winding up for creditors as a whole), or serve the wider statutory purpose of investigating and potentially prosecuting (civilly or criminally) those who have contributed to the circumstances that have led to that corporate collapse. One or other of the foregoing suffices to legitimate the purpose of a creditor seeking access to the product of a compulsory examination. Both in combination certainly would.

16. Second, the importance of the creditor’s role in the examination context has been advanced in various ways by the amendments introduced to the Corporations Law in 1992 and coming into force in 1993; see para 2.8 below.’

233 His Honour discussed the particular alterations implemented by the the 1992 Act at [28]:

‘Subsequent amendments to the Corporations Law coming into effect in 1993 took the enlargement further, doing so in the following ways so far as concerns the involvement of creditors in compulsory examinations:

(a) creditors must now be given written notice that the examination is to take place (s596E).

(b) creditors now have a right to inspect any “written record of an examination” without fee (s597(14A) [sic]

(d) creditors may, if the Court so directs, take part in such examination, being able to be represented for such purpose; see s596F discussed below.

(e) there is now a bifurcated scheme for examinations divided into mandatory examinations under s596A where an “eligible applicant” is entitled as of right to summon “an examinable officer” of the corporation about its examinable affairs whilst s596B permits a discretionary examination, again about a corporation’s “examinable affairs”. This is at the behest of an “eligible applicant”, but this time in relation to the examination of a wider class of person who “(i) has taken part or been concerned in the examinable affairs of the corporation and has been, or may have been, guilty of misconduct in relation to the corporation; or (ii) may be able to give information about examinable affairs of the corporation.”;

(f) while the class of “eligible applicant” was not substantially expanded from its earlier expansion in 1991, it is extended to include an administrator of the corporation, though not a creditor;

(g) however a creditor could (as before) be authorised in writing by ASIC so as to be an “eligible applicant”, and might well be such if, for example, that were seen to assist the liquidation and its recoveries, or it were otherwise in the public interest to assist an action by the creditor of the kind referred to by Malcolm CJ in Douglas-Brown v Furzer (supra).’

234 I agree with the observations of Santow J. The classes of persons likely to be subject to an order under either s 596B or s 597 are not dissimilar. In both cases, the principal consideration is the involvement of the examinee in the creation, managerial or other affairs or winding up, of the corporation and whether that person has, or may have been, guilty of misconduct, or whether the examinee could give information with respect to such matters. There is no material difference between the two provisions in this regard.

235 Santow J was of the opinion that the 1992 Act and the interpretation of the amendments enacted with the passage of that Act, reflect an expansionist approach to examinations under the Act which, in the circumstances before him, ought to allow the creditor applicants access to produced documents. He said at [33]:

‘33. Thus a fair way of putting the matter is to conclude that the trend of expansion of the examination provisions starting in 1991 and expanded in 1993 comports with a legislative scheme that allows creditors access not only to the transcript but also to the documents produced pursuant to the examination if necessary with a Court direction to ensure no abuse. It would be incongruous that creditors are permitted to attend such examinations, in public unless ordered otherwise, able to hear the questions and answers put including any reference to documents produced, later be entitled as of right to a copy of the written record of the examination, yet be denied copies of the produced documents after the examination. Such access, if allowed, is not ordinarily antithetical to the legislative purpose or thereby an abuse of that process. The contrary is borne out by the legislative scheme and the prior legislative history of expansion of the examination process.’

236 I have referred above to Santow J’s view of the limitations on the purpose for which the examination procedure might be used at least insofar as an application may be made by a creditor.

237 The limitations contained in Santow J’s decision must be correct. To interpret s 596A and s 596B as allowing the examination procedure to be used for the purpose of obtaining a forensic advantage, and for that purpose only, would not fulfil the statutory objectives.

238 In New Zealand Steel (Australia) Pty Ltd v Burton (1994) 13 ACSR 610, examination summonses were issued at the request of New Zealand Steel to Mr Burton, an officer of Marvin Manufacturers (Aust) Pty Ltd (MMA), which was alleged to be indebted to New Zealand Steel for debts incurred when MMA was solvent. New Zealand Steel had instituted litigation against MMA in relation to the outstanding debts.

239 As a creditor, New Zealand Steel had no automatic entitlement under s 596B to an examination summons but it had been authorised by ASIC to so apply and, as a result, became an ‘eligible applicant’.

240 Mr Burton applied to have the summons set aside on four grounds. First, it was said that the summons allowed New Zealand Steel to obtain a forensic advantage not otherwise available to it in the pending action against MMA. Secondly, Mr Burton claimed, the summons was being used to conduct a pre-trial cross-examination of him. Thirdly, it was argued that the creditors of MMA as a whole could derive no benefit from the examination of Mr Burton by New Zealand Steel. Fourthly, the summons was challenged as being abusive in that it sought to circumvent rulings excusing MMA from giving discovery.

241 In dismissing Mr Burton’s application to set aside the summons, Hayne J considered what permissible use could be made of the examination procedure. His Honour observed that the existence of proceedings involving the parties to an examination and the likelihood of some overlap between issues arising on the examination and in those proceedings does not vitiate the purpose of an examination. He said at 614:

‘Thus the bare facts that there is other litigation to which the applicant for an order for examination and the proposed examinee are parties, and that the examination will touch on the matters the subject of that proceeding, does not mean that the examination is an abuse of process.’

242 In that regard, he relied upon Hamilton v Oades (1989) 166 CLR 486; Re Rothwells Ltd (1989) 15 ACLR 168; Re Spedley Securities Ltd (1990) 3 ACSR 66; Re Excel; VASC and Hong Kong Bank of Australia Ltd v Murphy (1992) 28 NSWLR 12.

243 Hayne J continued at 616:

‘ It is clear then, that no longer are the examination provisions of the companies legislation to be regarded as restricted to cases in which the company has been wound up and it therefore follows that the provisions are not to be read as now limited to cases in which the examination will be for the purposes of a winding up and the benefit of those interested in that winding up. Indeed it was held in Hong Kong Bank that s 597 of the Corporations Law could not be characterised as a “law with respect to winding-up” within the meaning of s 601 of the law. Gleeson CJ said at 521:

As appears from its place in the legislative scheme, and from its terms, whilst s 597 has an important role to play in relation to companies that are being wound up, and liquidators or provisional liquidators will be among those who most commonly take advantage of its provisions, the operation of the section is by no means confined to liquidators. The statutory context of “external administration”, in which s 597 has its place, throws light on the purposes for which the power to order examinations (or to authorize persons to apply for examination orders) is conferred. Those purposes include the protection of shareholders and creditors and of interested members of the public. They are not, however, confined to the need for such protection in the case of winding up. Winding up is only one form of external administration. The scope of s 597 is wider.

As I have already noted, counsel for Burton contended that an examination under s 596B must have some public purpose and that an examination for the purely private purpose of obtaining information that would assist in the prosecution of an action brought for the benefit of the creditor who has applied for the order for examination is an abuse of process.

There would be an abuse of process if the coercive powers of s 596B were to be invoked for a purpose foreign to the purposes for which those powers are conferred…Thus it is not to the point to determine whether the creditor that has applied for an order for examination may (in its capacity as plaintiff in the pending action) obtain some advantage in the prosecution of its action which is an advantage not otherwise obtainable from the interlocutory processes available to it in the action. Nor am I called on to say whether obtaining any such advantage is “fair” or “unfair”. Such an approach would obscure the fundamental question which is whether the power is being used for a purpose foreign to the purpose for which it was given. If it is, then there is an abuse for that reason. If it is not, then no question of fairness arises; the legislature has permitted the step to be taken in such a case.’

244 I agree, with respect, with Hayne J.

245 In my opinion, the procedure in Part 5.9 of the Law and the Act is to aid persons who have the responsibility of the external administration of the company in carrying out their duties.

246 Those persons who have the responsibility of external administration owe duties to the creditors and the contributories, and to the corporation which they are then managing.

247 In my opinion, they are entitled only to seek an order for an examination summons where the purpose of the examination is, as was stated in Re Excel,for the benefit of the corporation, its creditors or its contributories.

248 So also ASIC is only entitled to authorise a person as an eligible applicant if that person’s purpose in seeking an examination summons is for the benefit of the corporation, its contributories or its creditors.

249 Otherwise, every corporation would be at risk of having its examinable officers or its officers or other witnesses examined to the possible detriment of the corporation. For example, a person claiming damages for a tort against a corporation could be authorised by ASIC as an eligible applicant and apply for an examination summons for the purpose of examining the corporation’s examinable officers under s 596A or its officers under s 596B to provide evidence in support of the action in tort.

250 Whilst I agree that the question of what is a proper purpose must be determined by reference to the legislation itself because it is the legislation which gives the power to issue a summons for an examination and the carrying out of an examination, the power cannot be used for a collateral or ulterior purpose. It must be used for a purpose expressly or implicitly authorised by the legislation itself.

251 The purpose of Part 5.9 of the Act is not to disadvantage corporations but to make the corporation’s examinable officers and other persons within the contemplation of s 596B accountable to those who are obliged to act in the interests of the corporation.

252 In my opinion, the following propositions relevant to these appeals emerge from the legislation and the authorities.

1. The power given to the Court to summon a person for examination is a coercive power.

2. The purpose of the power is to be gleaned from the legislation.

3. The following legitimate purposes emerge:

3.1 First, an examination is designed to serve the purpose of enabling an eligible applicant to gather information to assist the eligible applicant in the administration of the corporation.

3.2 Secondly, it assists the corporation’s administrators to identify the corporation’s assets, both tangible and intangible. It also allows the corporation’s liabilities to be identified.

3.3 Thirdly, the purpose is to protect the interests of the corporation’s creditors.

3.4 Fourthly, it serves the purpose of enabling evidence and information to be obtained to support the bringing of proceedings against examinable officers and other persons in connection with the examinable affairs of the corporation.

3.5 Fifthly, it assists in the regulation of corporations by providing a public forum for the examination of examinable officers of corporations.

4. If an eligible applicant applies for an order for the examination of a person for a purpose unconnected with the purposes authorised by the legislation that will be an abuse of process and the order, if obtained, will be set aside.

5. The procedure may not be used to allow a party to obtain a forensic advantage and, if it is, any order obtained will be set aside.

6. The procedure may not be used as a dress rehearsal for the cross-examination of a person in a pending or subsequent action. However, it is not improper to seek an order of the Court to summon a person for examination whilst litigation is pending against that person or entities connected with that person.

7. The question whether in any particular case the applicant has used the procedure abusively will depend upon the applicant’s purpose in seeking the order and all of the surrounding circumstances. It will not be an abuse unless an offensive purpose is at least the predominant purpose.

8. It will be an offensive purpose if the application cannot be characterised as being for the benefit of the corporation, its contributories or creditors.

9. A creditor may, if first authorised by ASIC, apply to the Court for an order to summon for examination a person for the purpose of obtaining information in relation to a debt owed to the creditor if such an examination would be in the interests of the corporation or its creditors as a whole.

10. A creditor may not use the procedure for the purpose of obtaining a forensic advantage which would not have been available to the creditor if the corporation had not gone into administration.

The application of those principles to the facts on these appeals

253 The respondent was a creditor and shareholder in CAT but after the 27 November 2001 conversation assigned that debt to New Tel in consideration of taking shares and options in New Tel.

254 There was no debt owing to the respondent at the time when New Tel went into liquidation. It claims to have a chose in action against New Tel arising out of that conversation which would lead to an award of damages in the order of $60,000,000. The chose in action is said to arise under s 1041H and s 1041I of the Act. The claim against New Tel arises because Mr Malone was at the relevant time a director and Mr Woolfe was acting on behalf of New Tel.

255 The respondent also claims that Mr Woolfe and Freehills (because Mr Woolfe was a partner in Freehills at the relevant time) are liable to it apparently under the Trade Practices Act and Fair Trading Act (WA).

256 Mr Waller has deposed in his affidavit that the respondent is seeking to establish what the respondent and Messrs Malone and Woolfe knew at the time of the conversation of 27 November 2001.

257 The respondent wishes to use that information in an action which it contemplates bringing against Freehills which, if successful, would compensate the respondent for the loss it suffered and would increase the pool of funds available to the other creditors of New Tel.

258 In paragraph 33 of Mr Waller’s affidavit he has deposed to the potential benefits to New Tel if the examinations were allowed to proceed.

259 If the respondent were to bring proceedings against Freehills or Messrs Malone and Woolfe and were to recover the amount of the damages suffered by the respondent, then New Tel and its creditors would thereby benefit. New Tel would benefit by being released from any liability it owed to the respondent. The creditors would also benefit.

260 There is no doubt that, if the presentations are allowed to stand, the respondent will obtain a significant advantage which would not have been available to the respondent if New Tel had not gone into liquidation.

261 However, the fact that it will obtain an advantage does not mean that its application for these orders amounts to an abuse of process.

262 Because New Tel stands to benefit from any action brought by the respondent against Freehills, in my opinion, it cannot be said that this application is an abuse of process.

263 For those reasons, I would dismiss the appeals.

264 The appellants should pay the respondent’s costs of the appeals.

I certify that the preceding two hundred and sixty two (262) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Associate:

Dated: 15 June 2005

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	WAD194 OF 2004

IN THE MATTER OF NEW TEL LIMITED (IN LIQ) ACN 009 068 955

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PAUL DOMINIC EVANS AND DAVID WOOLFE

APPELLANT

AND:

WAINTER PTY LTD ACN 008 725 586

RESPONDENT

WAD228 OF 2004

IN THE MATTER OF NEW TEL LIMITED (IN LIQ) ACN 009 068 955

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

PETER FRANCIS MALONE

APPELLANT

AND:

WAINTER PTY LTD ACN 008 725 586

RESPONDENT

JUDGES:	RYAN, LANDER AND CRENNAN JJ
DATE:	15 JUNE 2005
PLACE:	BRISBANE (HEARD IN PERTH)

REASONS FOR JUDGMENT

CRENNAN J:

265 I have had the advantage of reading the judgment of Lander J in draft and agree with the orders proposed by him. I agree also with his account of the history of legislative changes relevant to these appeals and agree with his conclusions that the findings by the trial judge were not affected by any error and there is no basis for allowing the appeals.

266 In the course of explaining legislative changes, Lander J had occasion to consider the decision of the Court of Appeal of Victoria, Flanders v Beatty (1995) 16 ASCR 324 and a decision of the Full Court of the Supreme Court of South Australia, Sandhurst Trustees Ltd v Harvey (2004) 206 ALR 594. In considering each of those intermediate appellate authorities, Lander J expressed certain views about the amending legislation.

267 Whilst Lander J agreed with Ormiston JA in Flanders that the 1992 Act extended the ambit of the relevant inquiry by including in the definition of ‘examinable affairs’, the business affairs of a related entity, he did not agree with Ormiston JA’s opinion in Flanders, at 332, that whatever had been said in the past as to the scope of compulsory examinations must be qualified by the amendments in 1992 which Ormiston JA. characterised as ‘significant changes to the relevant provisions.’ The other judges of appeal agreed with Ormiston JA. Lander J also did not agree with Doyle CJ’s statement in Sandhurst at [32] that the ‘statutory provisions as they now stand are wider in their reach than their predecessors’, except to the narrow extent that the provisions now included business affairs of a related entity in ‘examinable affairs.’ Bleby J. agreed with Doyle CJ, and in a short separate judgment, Perry J. did not disagree with Doyle CJ on this issue.

268 In applying a test, acknowledged to derive from Sandhurst, the trial judge concluded there was a possibility of the examinations yielding useful information of insolvent trading and there was a possibility that a successful claim by Wainter against Freehills could result in a possible reduction of its proof of debt for the same loss, in any liquidation of New Tel. Accordingly, the appellants had not shown the purpose of the examinations was predominately to advance the interests of the creditor and had failed to show the examinations would not be for the benefit of the liquidator of New Tel, its creditors or contributories.

269 Whilst I respectfully agree that questions of whether or not the relevant amending provisions in the 1992 Act are ‘significant changes’ (per Ormiston JA) or ‘wider in their reach than their predecessors’ (per Doyle CJ) are important questions, given the basis of the trial judge’s conclusions, it is not necessary to determine them for the purposes of disposing of these appeals. To my mind, submissions advanced on behalf of the parties to the appeals proceeded on that basis.

270 Since it is not necessary for the purposes of these appeals, to depart from interpretations of the relevant legislation by other Australian intermediate appellate courts, I respectfully decline to do so, particularly as this legislation is of a kind where it would be necessary to be convinced that the interpretations of other intermediate appellate courts were plainly wrong before departing from them: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 at 492.

271 I agree with the manner in which Lander J deals with the appeals and the costs.

I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Crennan.

Associate:

Dated: 15 June 2005

WAD 194 of 2004

Counsel for the Appellants:	W S Martin QC with G R Donaldson

Solicitor for the Appellants:	Freehills

Counsel for the Respondent:	D M Solomon

Solicitor for the Respondent:	Solomon Brothers

WAD 228 of 2004

Counsel for the Appellant	M L Bennett

Solicitor for the Appellant:	Bennett & Co

Counsel for the Respondent:	D M Solomon

Solicitor for the Respondent:	Solomon Brothers

Date of Hearing:	12 November 2004

Date of Judgment:	15 June 2005

Top