Liquidators face public examination

In the matter of Dampney and Others v Matta and Another [2022] NSWSC 356, the liquidators and former administrators of Jewel of India Holdings Pty Ltd ("Jewel Holdings") were unsuccessful in setting aside examination summonses issued against them on the application of the company's former director. Background Kishore Matta was a director of Jewel Holdings and other companies comprising the "Jewel Group", which carried on the business of manufacturing ready-made meals.'  On 26 April 2019, the Commonwealth Bank of Australia ("CBA) appointed administrators to the companies pursuant to s.436C of the Corporations Act 2001 (Cth)("Act").'  At that date, the total debt owed to CBA was $93 million. On or around 11 July 2019, the administrators accepted an offer from B&J City Kitchen Pty Ltd to purchase the business of the group for $35 million.'  However, the sale was opposed by the ACCC and ultimately did not proceed. ' On 18 March 2020, the business was sold to Chef Fresh Pty Ltd for $25.5 million. On 25 May 2020, the companies comprising the Jewel Group were wound up.'  The liquidators subsequently wrote to Mr Matta in respect of potential claims against him, and demanded payment of $8.176M. On 20 November 2020, Mr Matta's solicitors wrote to ASIC applying for "eligible applicant" status under s596A of the Act for Mr Matta to examine the liquidator and former administrators concerning:

• their failure to undertake appropriate steps in the sale of the business;
• the apparent sale of the business at an undervalue; and
• their apparent failure to investigate and prosecute potential claims against CBA,

with a view to determining whether any further steps or proceedings should be taken. Ultimately, ASIC granted "eligible applicant" status to Mr Matta on 27 May 2021.'  Mr Matta applied for, and obtained, the relevant summonses. On 23 August 2021, the liquidators and former administrators applied to set aside the summonses as an abuse of process. Section 596A Section 596A of the Act permits an "eligible applicant" to apply to the Court for orders summonsing an "officer" to attend Court to be publicly examined in relation to a company's affairs.'  The power is typically used by liquidators to examine the directors of a company.'  However, the definition of "officers" in s596A includes a company's current and former administrators and liquidators. For the purposes of s.596A, an "eligible applicant" is defined to include "a person authorised by ASIC to make an application." Before granting "eligible applicant" status, ASIC will require the applicant to provide details of why the examination is for the benefit of the company, its creditors or contributories, and why it is not an abuse of process. Absent an abuse of process, the Court has no discretion to decline to issue an examination summons if the requirements of the section are met (Walton v AC 004 410 833 Ltd (formerly Arrium Ltd)(in liq)(2002) 399 ALR 1). The hearing ' At the hearing, the liquidators and former administrators argued that the examination summonses were an abuse of process because, among other things:-

• The Court's power had been invoked for an illegitimate purpose '€“ i.e. as a "bargaining chip" in relation to the potential claims against Mr Matta.
• As Mr Matta did not complain about the sale processes at the relevant time, his concerns were not genuinely held.
• The examinations lacked utility because the liquidators had no funding to investigate or pursue potential claims against CBA in any event.

In considering the issues, the Court emphasised that the onus of demonstrating there is an abuse of process is a "heavy one." While the categories are not closed, the Court noted that abuses of process typically involve the use of the court's processes:

• for an illegitimate purpose;
• in a manner that is unjustifiably oppressive; and/or
• in a manner that would bring the administration of justice into disrepute.

The Court emphasised that an examination under s596A is essentially an information gathering process.'  Accordingly, an applicant is not required to demonstrate that the proposed examinations will be of utility in revealing misconduct or a viable cause of action. Ultimately, the Court found Mr Matta's concerns regarding the sale process were not speculative, far-fetched or misconceived, so as to give rise to an abuse of process.'  Rather, the concerns raised matters that were "prima facie worthy of investigation." ' Further, the mere fact that the liquidators were unfunded did not mean that it was oppressive for them to be required to bear their own costs of complying with the summonses. Accordingly, the liquidators' and former administrators' submissions were rejected and the summonses were upheld. Take-aways

• It is a high bar for an applicant to establish that an examination summons should be set aside as an abuse of process.
• The mere fact liquidators are unfunded does not mean it is oppressive for them to bear their own costs of compliance with a summons.
• The primary purpose of public examinations under the Act is to gather information. Accordingly, an eligible applicant is not required to demonstrate a viable cause of action.