In the decision of Pearce, in the matter of Bandiera Holdings Pty Ltd (Receiver Appointed) (in liquidation) v Bandiera Holdings Pty Ltd  FCA 876, the Federal Court of Australia provided useful guidance as to liquidators’ rights to obtain commercially sensitive information and as well as the information and documents that are required to be produced in a summons for examination.
- Scope of examinable affairs: The Court noted that company’s “examinable affairs” are broad and capture matters involving a company’s transactions and business dealings as well as property (including the existence any potential legal claims which a company may have against third parties).
- Threshold for issuing summonses: when issuing a Summons to a potential examinee, Liquidators only need to produce sufficient evidence to demonstrate that a possible claim or cause of action might exist, rather than having to establish the existence of a plausible claim. A fairly low threshold exists when satisfying a Court that a person is likely to be able to give information about a company’s examinable affairs.
- Purpose of public examinations: Public examinations are investigations and should not be treated as a mini trial of any examinee’s potential liability to a company in liquidation.
- Confidentiality undertakings: Liquidators can tip the balance in their favour when seeking a summons for the production of confidential and commercially sensitive information by offering assurances that the information will remain confidential.
- Cost Consideration: The provision of appropriate confidentiality undertakings can also influence the court’s stance on the costs associated with such applications.
Mr Reynolds owned and controlled Bandiera Holdings Pty Ltd (Bandiera), which company engaged in negotiations to acquire the financial planning business of L&J Copperfield & Associates Pty Ltd (Seller). Bandiera and the Seller entered into a business sale deed, by which the Seller agreed to sell its business for a purchase price of $1.84 million.
A dispute subsequently arose, including because Bandiera failed to pay the seller the full sum of the purchase price. As a result, liquidators were appointed to Bandiera (Liquidators).
The Liquidators obtained an examination summons under s 596B of the Corporations Act 2001 (Cth) (Act) requiring Bandiera’s financial advisors, HLB Mann Judd (HLB) to produce, among other things, HLB’s professional indemnity insurance policy (Policy) and any advice given by HLB to Bandiera/or its director, Mr Reynolds, with respect to the purchase of the Seller’s business.
HLB did not dispute that the summons was validly issued, and substantially complied with it. However, HLB resisted the requirement to produce the Policy on the basis that:
- the summons (or at least paragraph 19 of it concerning the requirement to produce the Policy) was not issued for a proper purpose and was a “fishing exercise” (Issue 1); and
- any potential claims the Liquidators had against it were weak, and therefore, the Court should exercise its discretion to refuse the production of the Policy given its confidential and sensitive nature (Issue 2).
HLB suggested that it had no relationship with Bandiera relating to circumstances of which the Liquidators were concerned.
However, the Court accepted that the advice given by HLB was relevant to the examinable affairs of Bandiera, noting that a company’s examinable affairs were broad and encompass matters concerning the transactions and dealings of the company as well as its property (including the existence and value of any causes of action which a company may have against third parties).
The Court emphasised that a fairly low threshold exists when satisfying a Court that a person is likely to be able to give information about a company’s examinable affairs. Where a potential examinee is summonsed, it is sufficient to show that a possible cause of action might exist, rather than having to establish the existence of a likely claim.
It was determined that that there was a sufficiently close connection between the alleged misconduct of Mr Reynolds and the advice provided by HLB to justify an investigation into whether HLB was involved in Mr Reynolds’ possible breaches of the Act. Therefore, the Liquidators were justified in issuing summons to the extent it required the production of the Policy.
HLB submitted that the Court must balance the public interest in allowing a liquidator to obtain necessary information of a company to enable a liquidator to discharge his or her statutory obligations against the legitimate interests of an examinee with respect to commercially sensitive information.
While the Court accepted that the Policy was confidential and commercially sensitive, the Court held that it was not self-evident that the sensitivity and confidentiality the Policy outweighed the interests of the Liquidators and unpaid creditors. Further, any concerns of HLB as to the commercial sensitivity of the Policy were appropriately alleviated by the Liquidators providing confidentiality undertakings.
The Court dismissed HLB’s application to resist the production of the Policy, particularly as the Liquidators had offered to maintain its confidentiality. The Court also ordered that HLB pay the Liquidators’ costs of the application.
This case not only provides valuable guidance on what liquidators must demonstrate to support an examination summons but also highlights the utility of offering confidentiality assurances as a way to practically obtain documents, or alternatively, protect a liquidator from a costs perspective.