Public examinations are usually conducted by insolvency practitioners, and considered as a powerful tool to investigate company officers or other relevant persons who might have information relating to a company’s affairs. This examination is particularly useful when company officers are not keen to cooperate, or where more detailed information is required.
The public examination process is detailed in Part 5.9 of the Corporations Act 2001 (Cwlth). It starts with an application to the Court by an ‘eligible applicant’, in most cases the insolvency practitioner, or the Australian Securities and Investment Commission (ASIC) or a person authorised in writing by ASIC. Previously, ASIC has provided this authority to creditors of a company, amongst others.
Summons will then be issued by the Court and distributed to the required individuals, who can be company officers or individuals who had been involved in examinable affairs of the company in question. The examinees are required by law to provide answers to all questions put to them, and to ensure that the statements made are neither false, nor misleading. In fact, the Act disallows the examinee from refusing to answer questions on the basis that the response may incriminate them or resulting in the examinee being liable for a penalty.
There is a variety of reasons that public examinations may be conducted. Commonly, they are used to gather information from parties who were uncooperative or unwilling to provide information when requested. They can also be conducted if an insolvency practitioner believes they may have a claim against a party, and wish to acquire more information on that party before commencing any legal action.
The examinee is allowed by the Act to have a solicitor representing them during the examination, although the solicitor’s involvement is generally limited to objecting that a particular question has no relation to the examinable affairs of the company. The examiner solicitor also has the right to pose questions to the examinee to provide a clearer picture of the answers or evidence provided.
The process of public examinations can be costly, ranging from $10,000 to $100,000, or even more if the matter is more complex, or if there is a higher number of examinees being summoned. A barrister is usually the one who conducts the examination after being briefed by a solicitor. But this is not mandatory, as it could also be conducted by a solicitor or the insolvency practitioner.
In the case where there is a lack of fund for insolvency practitioner to conduct public examinations, creditors can be consulted to help fund them. Although creditors might hesitate in providing funding as they would have already suffered losses as a result of the insolvency, the scope of examination may be in line with the creditors’ interests, especially if it results in recoveries, or it might help answer the creditors’ own enquiries.
Creditors should consider the merits of a public examination, and have discussions with the insolvency practitioner on their expectations as a result of the public examination, before agreeing to provide funding.