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Public Examinations

What is a public examination?

A public examination is the common name given to the process of an external administrator formally examining parties. Both the Corporations Act and the Bankruptcy Act have provisions to conduct these types of examinations. Though the name is not technically correct in all circumstances, we shall use that description for all types of examinations in under both Acts for this fact sheet.

Why hold a public examination?

There are a number of reasons, including:

(i) getting information from uncooperative persons;
(ii) obtaining documentation that would otherwise be unavailable;
(iii) obtaining detailed explanations on difficult matters in the estate;
(iv) uncovering offenses;
(v) determining whether there is a claim that may be made;
(vi) obtaining details of defenses to claims without having to commence proceedings; and
(vii) generally gathering information.

Who may apply for an examination?

An 'eligible applicant' may apply for an examination under the Corporations Act. An eligible applicant is the liquidator or provisional liquidator; an administrator or administrator of a deed of company arrangement; the ASIC or someone authorized by the ASIC.

Under the Bankruptcy Act, the Official Receiver may commence the examination of parties under Section 77C of the Act. This is usually done at the request of the trustee controlling the estate. The trustee, the Official Receiver or any creditor of the bankrupt may apply to the Federal Court for an examination under Section 81 of the Bankruptcy Act.

Where are examinations held?

Orders for examinations under the Corporations Act are generally given in the Supreme Courts, but the conduct of the examinations are usually passed to the local Magistrates or similar courts. Even though they are usually held in the lower court, the same rules and enforcement powers apply as they would for a Supreme Court matter.

Under the Bankruptcy Act:

(a) section 81 examination are held in the Federal Court or Federal Magistrates Court; and
(b) section 77C examinations are held without all of the formality but still under oath at the offices of the Official Receiver or any other place designated by the Official Receiver.

These two sections give some diversity under the Bankruptcy Act that is not available under the Corporations Act.

Who may be ordered to appear as a witness?

Orders for the examination of directors and officers of the company must in theory be given under section 596A. Section 596B provides the Court with a discretion to order the examination of other people. Almost anyone can be ordered to appear to answer questions and to produce records to the court in an examination under the Corporations Act, if that person has any information on the "examinable affairs" of the Company.

Examinable affairs in relation to a company 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).

The same requirement exists in the Bankruptcy Act - only people that have information on the examinable affairs may be examined.

Examinable affairs in relation to a person means:

(a) the person's dealings, transactions, property and affairs; and
(b) the financial affairs of an associated entity of the person, in so far as they are, or appear to be, relevant to the person or to any of his or her conduct, dealings, transactions, property and affairs.

In both cases the court will have to be convinced that the proposed witness is likely to have information on examinable affairs that would be useful to the external administrator.

Who asks the questions?

It is common for a solicitor or barrister to be engaged to ask the questions, though the liquidator or trustee may do so. Barristers are usually used due to their knowledge of the court process and their skill in examining and cross examining witnesses. Interestingly, the Bankruptcy Act allows any creditor or their representative to ask questions, regardless of whether they applied for the examination or not. Under the Bankruptcy Act, any creditor may attend the examination and put questions to any witness.

What type of questions may be asked?

Appropriate questions are limited to the examinable affairs of the insolvent company or bankrupt. This definition has been stretched over the years to include the witness's ability to meet the claims that may be made against them and issues like the professional indemnity insurance cover that may cover those claims. At times, the person asking the questions may have to convince the court that the question should be allowed.

What if the witness lies?

All of these examinations are conducted under oath or affirmation. That is, if the witness does not tell the truth, they may be charged with perjury.

Can the witness refuse to answer questions?

No. There is no right to refuse to answer questions. However, if the witness formally objects to any question as it may be incriminating to them, the answer may not be used against them in a later offense prosecution. But, they must still answer the question fully and truthfully.

In reality, this policy of objections does not usually concern the liquidator or trustee, as they do not take offense prosecutions and will not be using the information for that purpose. The information obtained is generally used by the liquidator or trustee for a commercial recovery action.

What if someone does not attend the examination when ordered to do so?

Examinations under the Corporations Act and section 81 of the Bankruptcy Act are held in Court and the witnesses are formally summonsed to the Court. Nonappearance under a summons from the Court may lead to a warrant for the arrest of the witness.

The Courts will generally give the witness the opportunity to comply with the summons before issuing that warrant. Usually the Registrar of the Court will want to attempt to locate the witness and instruct them to attend before the Court within a short time thereafter. If they do not attend at that stage, it is not unusual for an arrest warrant to be issued.

Can anyone watch the examination?

Anyone can attend and watch public examinations that are held in open Court. Rarely the court will order a closed session. The general public cannot, however, take part in the examination process.

Disclaimer
The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this fact sheet.

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Last Updated: 28.2.2008