What kind of documents can a liquidator get access to and from whom?

Liquidators have various tools available to locate the assets of a company in liquidation and to trace company monies they suspect may been “siphoned away”.  These tools include applying to the Court for the officers of the company and related entities to “deliver up” various documents and for those parties to then submit to public examination before the Court in respect of the company’s examinable affairs.  The recent Federal Court decision of Cathro, in the matter of Lidcombe Plastering Services Pty Limited (in liq) [2018] FCA 1138 (Cathro) considered the power to compel a related entity to produce documents relevant to the liquidation of a company prior to a public examination.    

In Cathro the following definitions were relevant:

• Related entities under the Corporations Act 2001 (Cth) (Act) includes a spouse of a director of a company.
• Examinable affairs is defined in the Act as including (a) the promotional, formation, management, administration or winding up of a corporation and (b) any other affairs of the corporation (including anything that is included in the corporation’s affairs because of section 53).
• Section 53 of the Act provides, in part, that for the purposes of the definition of examinable affairs, the affairs of a corporation includes the control, business, trading, transactions and dealings (whether alone or jointly with any other person or persons), property (whether held alone or jointly with any other person or persons), liabilities, profits and other income, receipts, losses, outgoings and expenditure of the corporation, as well as matters concerned with the ascertainment of the persons who are or have been financially interested in the success or failure of the corporation or are or have been able to control or materially to influence the policy of the corporation.

In Cathro the Court had ordered the director’s wife to produce various documents including but not limited to her personal income tax returns, bank statements, loan statements and credit card statements in her name only and in the joint names of her and her husband.  The wife applied to set aside the Court’s orders for the production of the documents.   She had never been an officer of the company.

Unsurprisingly, the director husband owned no real property in NSW, but the wife owned four (4) , including one (1) at Vaucluse, one (1) at Bondi and one (1) at Bondi Junction. Statements showed three cheque withdrawals from the company’s accounts in July 2012 totalling $A630,000.00, but the recipient of the funds could not be ascertained.

The liquidator argued they did not know how the wife was able to fund the properties or otherwise service the mortgages registered against them and that he wanted to inquire whether any of the company’s property had been transferred to her, if any such transfers were at an under-value and whether the company’s property was traceable into her assets.

The Court noted the:

• guiding principles that apply to the making of orders for production in aid of public examinations include the power being exercised where the production of documents is required for the conduct of the examination and there being a connection between the order for production of documents and the purpose of the examination; and
• bounds of the power are marked out by asking whether a person acting judicially could reasonably be of the view that production of the document or thing described in the order was required for the purpose of examining the person.

It was held the disputed documents concerned the wife’s financial affairs during the life of the company and after the commencement of the liquidation.

The purposes of the proposed examinations included the identification of property of the company, including causes of action that may exist against the director and his wife.  Another purpose of the examinations was to ascertain whether the wife was a person who was or had been financially interested in the success or failure of the company.

The facts provided a reasonable basis for the liquidator to suspect examination of the wife’s financial affairs during the life of the company may reveal the company possessed a cause of action against her.   Accordingly, the Court refused to set aside the order for production of the documents.

Takeaways

Given the breadth of what constitutes the examinable affairs of a company, the type of documents that can be sought from a related entity is similarly wide but there must be a nexus between the documents sought and the examinable affairs of the company.

Links and further references

Cases

Cathro, in the matter of Lidcombe Plastering Services Pty Limited (in liq) [2018] FCA 1138

Legislation

Corporations Act 2001 (Cth)

Further information about company liquidation

If you need assistance in relation to any legal matter related to a company liquidation, contact Dundas Lawyers Gold Coast for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.