A court has rejected an attempt to limit the scope of summonses for examination issued by authorised creditors in liquidation proceedings and confirmed that “examinable affairs” can cover a lot of ground.
Shangri-La Construction was engaged by GVE Hampton to build apartments. The parties got into a dispute over payments and Shangri-La got a judgment in the County Court of Victoria that GVE Hampton owed it A$200,000.
A few weeks later, in December 2017, GVE Hampton went into liquidation. Its liabilities added up to $3.7 million, including the $200,000 owed to Shangri-La.
According to the subsequent liquidators’ report, GVE Hampton had made a related party loan of $5.2 million, which remained unpaid. Vladislav Hyatt was a director of GVE Hampton and the related party borrower. A company associated with Hyatt was one of three GVE Hampton shareholders.
In May 2019, Shangri-La applied to ASIC to be allowed to serve summonses to examine the affairs of Hyatt, his mother and two other directors of GVE Hampton.
In December, the registrar of the Federal Court made orders for the issuing of the summonses.
All those parties (the examinees) sought to have the summonses discharged or to have their scope limited, arguing that the summonses were for an improper purpose and exceeded the scope of “examinable affairs”.
They argued that a creditor could only conduct examinations in relation to matters relevant to its own debt.
Justice Beach rejected this argument, saying an authorisation by ASIC under the relevant section of the Corporations Act does not expressly limit the examinable affairs to be examined.
“Any such limitation is for the court issuing the summons,” Beach said.
Beach said that if the scope of the summons was limited to matters relating only to Shangri-La’s debt then it would be without purpose, since Shangri-La already had a court ruling that it was owed $200,000.
Beach ruled that Shangri-La’s legitimate purpose for conducting an examination into the general affairs of GVE Hampton, which includes the affairs of any “connected entity”, was to detect whether money that ought to have been available to settle GVE Hampton’s debts had been redirected and could be recovered.
The judgment said: “The expression ‘examinable affairs’ is of very broad amplitude and can encompass the relevant company’s dealings with third parties, including related entities or persons. Some of the examinees’ arguments concerning the scope of the examinations or the documents sought pay insufficient regard to this breadth.
“Generally, so the examinees said, a creditor has no role in the overall administration of a corporation and should not therefore be in a position to conduct an examination as if they were the liquidator or administrator. The premise is correct, but the conclusion is overblown and in its generality is inaccurate.”
In a note to clients on the case, Corrs Chambers Westgarth said the decision is “a helpful roadmap for creditors considering taking steps to become an eligible applicant for the purposes of conducting examinations.”