It is difficult for a director to not be intimidated by the process of a public examination. An examination is initiated by summons from the court, leading to scrutiny by an often fervent examiner under the eyes of a judge. In this article we discuss the process that you can expect to encounter in a public examination as a director of an insolvent company.
Who starts the public examination process?
An eligible applicant under the Corporations Act starts the process by filing an application summons. The eligible applicants include the ASIC or an insolvency practitioner such as a liquidator or an administrator.
The applicant will file an application at the court against an examinable person (including persons subject to discretionary examinations). Upon successful application, the court will grant the summons to require the person to appear at court. The person will be examined on oath about the examinable affairs of the insolvent company.
What if you fail to attend the examination?
If you fail to attend the examination without lawful excuse, it will amount to contempt of court. This may lead to issuing a warrant for your arrest. As a general rule, you must respond to an examination summons and attend the examination as required – unless you have applied with your lawyer to set it aside.
What questions can you expect at the examination?
The examiner is permitted to examine you on the “examinable affairs” of the company. In some cases, the summons issued to you will outline brief details about the general nature of the matter being investigated. However it does not need to and often does not.
“Examinable affairs” is a broad category area which includes:
- the promotion, formation, management, administration or winding up of the corporation; or
- any other affairs of the corporation (including anything that is included in the corporation’s affairs because of section 53); or
- 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).
These broad categories include affairs about the company’s business, transactions, dealings, property, finances, audit of those finances, internal management, ownership, control, creditors and other persons having a financial interest in the company. The courts have interpreted, “examinable affairs” broadly to include affairs that may provide information on the prospects of success of potential litigation, including action for breach of directors’ duties and claim for potential misfeasance of officers.
How will the examination be conducted?
At the public examination, you will be asked to stand at the witness stand and make an oath or affirmation that the statements and testimony you provide to the court will only be the truth and nothing but the truth.
A judge will preside over the examination to monitor and govern the examination, whilst a barrister or solicitor for the applicant (often the insolvency practitioner) will have prepared and ask you a series of questions regarding the “examinable affairs” of the company. If you knowingly provide false information you may be charged with perjury.
At the end of the examination, the court may order that the transcript be provided in writing and require you to sign the record. This written record may be used against you in any legal proceedings, subject to the exception for self-incriminating evidence
Can you refuse to answer certain questions?
Generally speaking, you do not have the right to refuse questions. This includes questions that may lead to self-incrimination and reveal potential offences against you or by you. All answers should be provided truthfully and to the best of your knowledge. However you may claim privilege over your answers, in which case the examiner cannot use answers you provided for prosecution against you. If you are concerned about possible prosecutions you should immediately seek legal advice.
Can a lawyer assist in public examinations?
You have the right to be represented at the court during the public examination. The process is likely to be stressful as it is a formal court process and especially if you do not know what to expect. It is important that you know at times you may be able to claim privilege and you may be able to object to certain types of questioning.
Article by Stipe Vuleta & Steven Lee