R v Hughes

Earlier decisions on earlier legislation 101 The current sections were enacted by the 1992 Act and it is necessary to keep in mind that the present sections have evolved since the statutory regime was considered by the High Court in Hamilton v Oades (1989) 166 CLR 486. 102 In that case, the High Court was called upon to consider the predecessor to s 596B, which was then s 541 of the Companies (New South Wales) Code (the NSW Code). That section was in the same form as the Code. The Code did not have an equivalent of s 596A. 103 Section 541 of the NSW Code relevantly provided: ' (1) In this section, a reference, in relation to a corporation, to a prescribed person, shall be construed as a reference to an official manager, liquidator or provisional liquidator of the corporation or to any other person authorized by the Commission to make applications under this section or to make an application under this section in relation to that corporation. (2) Where it appears to the Commission or to a prescribed person that - (a) a person who has taken part or been concerned in the promotion, formation, management, administration or winding up of, or has otherwise taken part or been concerned in affairs of, a corporation has been, or may have been, guilty of fraud, negligence, default, breach of trust, breach of duty or other misconduct in relation to that corporation; or (b) a person may be capable of giving information in relation to the promotion, formation, management, administration or winding up of, or otherwise in relation to affairs of, a corporation, the Commission or prescribed person may apply to the Court for an order under this section in relation to the person. (3) Where an application is made under sub-section (2) in relation to a person, the Court may, if it thinks fit, order that the person attend before the Court on a day and at a time to be fixed by the Court to be examined on oath or affirmation on any matters relating to the promotion, formation, management, administration or winding up of, or otherwise relating to affairs of, the corporation concerned.' 104 The Commission was the National Companies and Securities Commission: s 5 of the Code. The Commission was the predecessor of ASIC and charged with similar regulatory duties. 105 There is, in my opinion, no relevant difference between a 'prescribed person' and an 'eligible applicant'. A 'prescribed person' included an official manager, liquidator, provisional liquidator of a corporation or a person authorised by the Commission. The inclusion of a provisional liquidator in s 541 but not in 'eligible applicant' in the Act is unimportant. The only form of external management apart from liquidation, or possibly receivership, recognised in the Code was official management. Therefore, there was no reference to the two types of administration which were first recognised in the 1992 Act. In both Acts the regulatory authority could authorise a person to be a 'prescribed person' in the case of the Code or an 'eligible applicant' in the case of the Act. 106 However, in the Code the persons in relation to whom an order could be sought were limited to those who had taken part or been concerned in the promotion, formation, management, administration or winding up of, or who had otherwise taken part or been concerned in the affairs of a corporation, or who may have been guilty of fraud, negligence, default, breach of trust, breach of duty or other misconduct in relation to the corporation, or who may have been capable of giving information in relation to the promotion, formation, management, administration or winding up of, or otherwise in relation to the affairs of a corporation. 107 In Hamilton v Oades (1989) 166 CLR 486, a person was summoned to be examined under s 541 and during the course of that examination objected to a question on the ground that there were charges pending relating to offences alleged to have been committed by him in his capacity as a director of the company the subject matter of the examination. 108 The Registrar refused to limit the examination and the examinee appealed to a judge of the Supreme Court of New South Wales who dismissed that appeal. He appealed from that judge to the Court of Appeal which unanimously allowed the appeal and made an order that during the pendency of the charges and the criminal trial the examinee not be compelled to answer any questions which might tend to incriminate him or would tend to disclose a defence to those charges. 109 The Court of Appeal held that the examinee had not established any abuse of process on the part of the examiner but exercised what it said was its inherent power to control its own proceedings with the object of avoiding the risk of injustice being caused by such proceedings. 110 An appeal was brought to the High Court. 111 In relation to the purpose of s 541, Mason CJ said (at 497): 'There are the two important public purposes that the examination is designed to serve. One is to enable the liquidator to gather information which will assist him in the winding up; that involves protecting the interests of creditors. The other is to enable evidence and information to be obtained to support the bringing of criminal charges in connexion with the company's affairs: Mortimer v. Brown (1970) 122 C.L.R. at pp. 496, 499. Sub-section (2)(a) and (b) emphasizes the high public importance of these purposes. The examination is designed to elicit, among other things, evidence and information relating to the question whether the witness "has been, or may have been, guilty of fraud, negligence, default, breach of trust, breach of duty or other misconduct in relation to" the corporation.' 112 He further said at 497: " The cases in which a court has stayed an examination on the grounds now claimed when charges have not been laid are rare. The very purpose of the section is to create a system of discovery, which may cause defences to be disclosed, for the purpose of bringing charges. The section gives to the liquidator rights not possessed by an ordinary litigant: John Arnold (1979) 23 S.A.S.R., at p. 232. In these circumstances it must be accepted that the section applies equally to proceedings which the liquidator "might be able to bring, proceedings he contemplates bringing, proceedings he has decided to bring, and proceedings he has already brought": Re Hugh J. Roberts Pty. Ltd. (1970) 91 W.N. (N.S.W.) 537, at p. 541; Re Norman Baker Pty Ltd.; Ex parte Hillman [1982] W.A.R. 349, at pp. 351-352; Re Nalanda Pty Ltd. [1983] 1 Qd R. 269 at p. 271. To adopt the language of Kitto J. in Mortimer v Brown (1970) 122 C.L.R., at p. 496, to hold otherwise "would render the provision relatively valueless in the very cases which call most loudly for investigation".' 113 Mason CJ, however, made it clear that the Court had not thereby abrogated its inherent powers to control the proceedings. He said, at 498: ' The court retains its power to give directions and to restrain questions in cases where the examination is being conducted for an improper purpose or constitutes an abuse of process: s. 541(5). Thus if a liquidator were to conduct an examination directed to compel the examinee to disclose defences or to give pre-trial discovery, or to establish guilt, this examination may be restrained as an abuse of process: Hugh J. Roberts (1970) 91 W.N. (NSW), at p. 541; Huston v. Costigan (1982) 45 A.L.R. 559, at p. 563; Re Gordon (1988) 18 F.C.R. 366.' 114 Dawson J held that s 541 itself provided controls which could be exercised to safeguard an examinee against the use of the section in an oppressive or unjust way. Toohey J was also of the opinion that there was sufficient power within s 541 itself to control examination so as to protect an examinee against oppression or injustice. 115 Mason CJ's reference to the purpose of examinations was cited with approval by Brennan CJ and Toohey J in Gould v Brown (1998) 193 CLR 346 at 387, which concerned, amongst other things, the validity of s 596A and s 596B. 116 The two purposes identified by Mason CJ are not necessarily the only purposes for which s 596B has been enacted. Mason CJ was considering the purposes of the Code where the prescribed person was a liquidator. He did not consider the section's purposes in the circumstances of an Official Manager seeking an order. Having regard to those who are now entitled to be an 'eligible applicant' under the Act, the first purpose identified by Mason CJ would not be limited to circumstances where a liquidator is gathering information to assist in the winding up and only protecting creditors. 117 As already noticed, s 597(4) of the Act provides that the examination will take place in public except to the extent to which the Court considers that, by reason of special circumstances, it is desirable to hold the examination in private. Section 597(13) empowers the Court to require the examination to be recorded in writing and to require the examinee to sign that written record. 118 Section 597(14A) allows any member of the public to inspect the written record on payment of the prescribed fee. The person who applied for the examination, and any officer or creditor of the corporation, may inspect without fee. Those subsections indicate other purposes of the legislation, first, being to enable the public to know how corporations are being managed and secondly, to achieve the deterrent effect of a public examination. In Southern Cross Petroleum Sales (SA) Pty Ltd (in liq) v Hirsch (1998) 70 SASR 527 at 534, I said: 'The third purpose for which the legislation exists is for the public interest in assisting the regulation of corporations. The legislation acts to remind those who act as examinable officers of the corporation, or who deal with a corporation, that they are at risk that, if any of the circumstances giving rise to an application by an eligible applicant arise, they may be called upon to be publicly examined about their conduct in relation to the corporation. It is in the public interest that those who act as examinable officers of corporations and those who take part or are concerned in the examinable affairs of a corporation are obliged to impart their knowledge of the affairs of the corporation in the event that the corporation becomes subject to administration or winding up. In that sense the legislation serves the public interest as well as the private interest of creditors. "The honest conduct of the affairs of companies is a matter of great public concern today": see Rees v Kratzmann (1965) 114 CLR 63 at 80 per Windeyer J.' 119 Any purpose that will benefit the company, its creditors, its members or the public generally will be within the contemplation of the section. 120 In Re Excel Finance Corporation Ltd; Worthley v England (1994) 52 FCR 69 ('Re Excel'), the Full Court of the Federal Court considered s 597 of the Corporations Law as it was prior to the enactment of the 1992 Act. 121 The relevant subsections of s 597 were then in the following form: '597(1) In this section, a reference, in relation to a corporation, to a prescribed person, is a reference to an official manager, liquidator or provisional liquidator of the corporation or to any other person authorised by the Commission to make applications under this section or to make an application under this section in relation to that corporation. 597(2) Where it appears to the Commission or to a prescribed person that: (a) a person who has taken part or been concerned in the promotion, formation, management, administration or winding up of, or has otherwise taken part or been concerned in affairs of, a corporation has been, or may have been, guilty of fraud, negligence, default, breach of trust, breach of duty or other misconduct in relation to that corporation; or (b) a person may be capable of giving information in relation to the promotion, formation, management, administration or winding up of, or otherwise in relation to affairs of, a corporation; the Commission or prescribed person may apply to the Court for an order under this section in relation to the person.' 122 Section 597 was, to all intents and purposes, in the same terms as s 541 and therefore not relevantly different from s 596B. There was no equivalent to s 596A. 'Prescribed person' included a liquidator, a provisional liquidator and an official manager and 'any other person authorized by the Commission to make applications under this section or to make an application under this section'. An official manager was a person appointed under Part 5.3 of the Corporations Law. 123 Prior to the 1992 Act, Part 5.3 of the Corporations Law provided for a system of external administration by way of official management. An official manager could be appointed at the instigation of the corporation's directors: s 436(1) or by resolution of the corporation's creditors: s 439(1). The effect of a resolution placing a corporation under official management by the creditors of the corporation was that the directors ceased to hold office and the official manager would assume the management of the corporation and exercise all the powers of the directors for the period specified in the creditors' resolution: s 442(1). The duties of the official manager included taking into his or her control all the property to which the company was entitled and conducting the business and management of the company in such a manner as was most economical and most beneficial to the interests of the members and creditors: s 448(1)(a) and (b). Official management was a more cumbersome and less sophisticated form of external management than the administrations provided for in the 1992 Act. 124 The important point is that the Law, prior to the 1992 Act, empowered an official manager to apply for an order under s 597 and in that sense was not relevantly different from the provisions of the Act as they now stand. 125 The Commission, which under the Law was the Australian Securities Commission (s 9 of the Corporations Law), could authorise a party or parties generally to make applications under s 597 or it could authorise a particular party to make an application under the section. Thus, it could authorise a receiver (as it did in Re Excel) or a creditor (as was contemplated in Re Excel) to make application under the section. The Law did not prior to the 1992 Act have an equivalent of s 596A. 126 If the prescribed person, for the purpose of s 597(1) of the Law, was an official manager or a person authorised by the Commission, that person could apply for an order under s 597 even though the corporation was not in liquidation or in the case of a person authorised by the Commission, in any form of administration. The corporation did not need to be in any form of administration for the Australian Securities Commission to make an application and obtain an order. The criteria that had to be satisfied were those in s 597(2) and, of course, paragraphs (a) and (b) were alternatives. The Australian Securities Commission could authorise a creditor to make an application. Again, if that had been done, there was no need for the corporation to be in any form of administration and, in particular, in liquidation. 127 In Re Excel, the Australian Securities Commission had authorised the receiver and manager of the company, who had been appointed by the trustee of the debenture holders, to make application under s 597. The receiver sought and obtained an order for the examination of Mr Worthley, a partner in the firm of accountants who were the company's auditors. On the same day as that order was obtained the trustee and debenture holders commenced proceedings against Mr Worthley claiming damages for losses said to have been occasioned by reason of Mr Worthley's negligent audit. 128 The question before the trial judge and before the Full Court on appeal was whether the receiver should be required to disclose the contents of his affidavit filed in support of his application for the order for examination. The trial judge refused to require the receiver to disclose the affidavit. Mr Worthley appealed. 129 The Court said at 89: ' It is apparent that the question whether there is, in a particular case, an abuse of process will be a question which will depend upon the purpose of the applicant seeking the order of the court and the circumstances of the case. For an abuse to be found it will be necessary that the offensive purpose be, at the least, the predominant purpose: see Burns Philp & Co Ltd v Murphy … at 732 and Williams v Spautz … at 529.' 130 The Court then referred to the divergence in opinion between the English authorities and the Australian authorities, and said at 90: ' The Australian jurisprudence eschews the English distinction in favour of the more useful test of whether the person seeking the examination order has the purpose of obtaining a forensic advantage not otherwise available …' 131 At 91, the Court said: ' Whether there will be, in a particular case, a use of the process or an abuse of it will depend upon purpose rather than result. The consequence of an examination may well be that the examiner has conducted a "dress rehearsal" of cross-examination which may take place in a subsequent trial. The fact that the trial has commenced, or is contemplated, may throw light upon the purpose. But merely because other proceedings had been commenced or are contemplated would not involve, of itself, an abuse of process. This follows having regard to the nature of the investigative process which could throw light on the question, inter alia, whether there was evidence which would warrant a liquidator, for example, proceeding against an examinee. But it may be quite a different question where proceedings contemplated or instituted are not proceedings to be brought by the company, but proceedings brought by some other party for the advantage of that party rather than the company. For example, it would be an abuse of process for a creditor approved by the Commission for the purposes of s 597(1) to obtain an examination summons to conduct an examination for the purpose of obtaining evidence in proceedings which the creditor proposed to bring against the examinee for defamation. That would be a purpose completely foreign to the power of examination which is ultimately in aid of the company itself and not the personal advantage of the person seeking to conduct the examination.' (Emphasis added.) 132 The appellants in these appeals, of course, relied upon the dicta contained in the emphasised passages. 133 They argued that the purpose of conducting this examination is not for the benefit of the company. It is simply for the benefit of the respondent in order to provide evidence to the respondent, so that the respondent might bring proceedings against either the examinees or the company or Freehills. 134 It was contended that it is an abuse of the examination process because it is foreign to the power of examination to conduct an examination for the aid of a single creditor. 135 The appellants argued that not only was the purpose not for the benefit of the company but in some respects, alien to the company. 136 It is necessary to further consider the Court's reasons in Re Excel. 137 In Re Excel, the Court referred to the decision of the Supreme Court of New South Wales in Re Laurie, which was a case in which a liquidator was funded by a substantial creditor, who had threatened proceedings against the examinee who was a director of the company in liquidation. The liquidator wished to conduct an examination to determine whether, when the debt was incurred, there were no reasonable grounds to expect that the company would be able to pay all of its debts as and when they became due. 138 After noting that the Court in Re Laurie had refused to set aside the examination summons, the Court said at 92-93: ' The applicant for an examination order in Re Laurie Cottier Productions Pty Ltd was, as has already been observed, not the creditor. Nevertheless, there could be no objection to the use of the examination procedure on application by a creditor whose purpose was to ensure that his or her debt was paid. After all, if the creditor were unsecured the interests of that creditor are no different from the interests of all other creditors who share rateably in the distributable assets of the company. Even in a case where the creditor was a secured creditor, the fact that the purpose of the examination was to aid the ultimate recovery of the secured debt, by, for example, the ascertaining of the existence of assets, would operate to the benefit of the company by ensuring that it paid out the secured creditors and that there was then revealed what other assets (if any) were available for distribution to unsecured creditors. … This notwithstanding, we are of the view that the use of the power to obtain an examination summons for the principal purpose of furthering the cause of the applicant for the summons or, as in this case, appointor of the applicant in litigation against third parties, not for the benefit of the corporation, its contributories or creditors (other than in the most indirect way) is a use of the power for a purpose foreign to that power and thus an abuse of the power. Such a purpose would provide to the examiner the opportunity for pre-trial depositions which would not be available in the litigation.' 139 It cannot be overlooked that Re Excel was concerned with access to information. It did not decide any more than in the circumstances of the case the proposed examinee should be entitled to have access to the affidavit filed in support of the Receiver's application for the order and should be entitled to issue subpoenas to obtain further information. 140 However, that said, the Court did decide that it would be an abuse of the Court's processes, by misusing the power to obtain an examination summons, if the summons were obtained not for the benefit of the corporation, its contributories or creditors but only for the benefit of the prescribed person to be used in other litigation. 141 It also decided that it was not necessarily an abuse for either an unsecured creditor or a secured creditor to use the procedure for the purpose of recovering the unsecured or secured debt. 142 In the case of the unsecured creditor, the Court decided that the interests of all unsecured creditors would be served because they would share rateably. In the case of the secured creditor, the Court decided that, if the secured creditor were conducting the examination for the purpose of recovering the secured debt by ascertaining the existence of other assets, the corporation would benefit by ensuring that it paid out the secured creditor thereby revealing what other assets were available to the unsecured creditors. 143 In my opinion, Re Excel stands for the proposition that it is an abuse of process to use the Part 5.9 procedure if the predominant purpose of the applicant seeking the order is not for the purpose of benefiting the corporation, its contributories or its creditors. 144 If the party seeking the examination summons is doing so for any number of purposes, which do not include the purpose of benefiting the corporation, then that would amount to an abuse. On the other hand, if the party seeking the examination summons has as one purpose the achievement of a benefit to that party but has also a further purpose which is for the benefit of the corporation then the use of the Part 5.9 procedure will not be an abuse of process. 145 The 1992 Act repealed subsections 597(1), (2) and (3) and enacted ss 596A, 596B, 596C and 596D. The differences have already been addressed. 146 The Full Court of the Supreme Court of Western Australia first considered the breadth of s 596A and s 596B of the Law in Douglas-Brown v Furzer (1994) 13 ACSR 184. As already mentioned, those subsections were not relevantly different from s 596A and s 596B of the Act. 147 In that case, a creditor of the company in liquidation financed a liquidator for the purpose of examining the respondent who was an employee of another company which had dealt with the company in liquidation. The respondent, it was asserted, had knowledge of the affairs of the company in liquidation and, it was thought, was able to provide confirmation of the manner in which the company in liquidation had carried on its business. The creditor had already commenced proceedings against the respondent and his employer. An order was made pursuant to s 596B for the respondent's examination but a Master ordered that the examination be recorded but not transcribed. The order was made to prevent the creditor obtaining an advantage from the examination. 148 The liquidator sought leave to appeal. Malcolm CJ (Ipp and Anderson JJ agreeing) said at 189: ' The current provisions in the Corporations Law are the result of substantial amendments introduced in 1992. The predecessor to s 596A and s 596B was s 541 of the Companies (Western Australia) Code (the Companies Code). Section 541(2) provided that a "prescribed person", namely an official manager, liquidator or provisional liquidator of a corporation, or any person authorised by the National Companies and Securities Commission, may make application to the court for an order for examination. A creditor was not an eligible applicant under s 541. It is clear that a creditor would now be an eligible applicant under s 596B of the Corporations Law.' 149 It is not clear why his Honour omitted reference to s 597 of the Law as it stood immediately before the 1992 Act to which he referred but, because s 597 of the Law was not materially different from s 541 of the Code, nothing may turn upon that omission. Malcolm CJ said at 191: 'In my opinion, the provisions of sections 596A, 596B and 597 now put liquidators and individual creditors on the same footing insofar as an examination is concerned. The Court retains its power to prevent injustice because it retains its power to give directions and restrain questions whether the examination is being conducted for an improper purpose or constitutes an abuse of power.' 150 Putting aside the omission of a reference to s 597 of the Law, that statement, with respect, is not entirely accurate. A creditor was not a 'prescribed person' under the Code or the Law. Before the 1992 Act the Law provided that a creditor could become a 'prescribed person' if authorised by the Commission. 151 After the 1992 Act the position under the Law was the same as it is now under the Act. A creditor is not an 'eligible applicant' under the Act. A creditor can become an 'eligible applicant' if authorised by ASIC. 152 It follows that it is not right to say that ss 596A, 596B and 597 put liquidators and creditors on the same footing. Liquidators, by reason of their office, are eligible applicants. Creditors are only eligible applicants if authorised by ASIC. ASIC would only authorise creditors to be eligible applicants if that were appropriate having regard to its own charter under the Act which constitutes it. 153 A creditor's position, so far as concerns the right to seek to summon a person, did not change with the enactment of ss 596A or 596B. Under both the old and new regime a creditor only became entitled to summon a person if authorised by the regulatory authority. 154 The new sections and, in particular, s 596B were considered by a Full Court of the Supreme Court of Victoria in Flanders v Beatty (1995) 16 ACSR 324. In that case, the Brashs Group relevantly included Brashs Pty Ltd and Brash Holdings Ltd. In 1994 the Brashs Group became insolvent and administrators (the respondents to the appeal) were appointed to each of the companies pursuant to s 436A of the Act. The creditors resolved that each company should execute a deed of company arrangement. Each company executed a deed. The deeds were not identical but, relevantly, the companies assigned to the deed administrators a number of choses in action including a chose in action for breach of fiduciary duty or other duties by its auditors. 155 Ormiston J said at 332 that the enactment of s 596A and s 596B by the 1992 Act 'has radically altered the scope of, and procedure relating to, examinations, albeit that the subject matter of an examination is little altered so far as the company itself is concerned'. 156 He gave three instances of the alteration. First, the new sections extended the class of persons who might apply for an examination summons. Secondly, the examinable affairs of the company had been extended to include business affairs and business affairs of connected entities. Thirdly, s 596A was mandatory in its terms. 157 His Honour said that the previous decisions had to be understood having regard to the new regime which formed part of the 1992 Act. 158 Ormiston J continued at 332: 'For present purposes the critical change is the expansion of the class of persons who may be an "eligible applicant" …'. 159 After referring to the definition of eligible applicant in s 9 of the Corporations Law he said: 'It can be seen that this class has not been greatly expanded from that of prescribed persons under the unamended s 597(1), except to the extent that administrators are now added, including the administrators of deeds of company arrangements. Moreover it is important to note that, except to the extent that the Commission may authorise any person to apply for the issue of a summons, administrators are the only additional eligible applicants who may seek the issue of a summons for examination as of course under s 596A or a discretionary order under s 596B. In my opinion, whatever has been said in the past as to the scope of compulsory examinations must be qualified by these significant changes in the relevant provisions, at least to the extent necessary to comprehend their effect. As these amendments form part of the Corporate Law Reform Act 1992, which introduced Part 5.3A of the Law, I would conclude that the legislature saw it as important that administrators should have wide powers to obtain information and conduct any necessary examination, in much the same way as those powers were and are still given to liquidators. However, the significance of granting these powers to administrators is that the object for which they ought properly be used should comprehend anything which fairly may be expected to advance the course of an administration, and in particular, for present purposes, an administration under a deed of company arrangement. Indeed one would doubt, having regard to the tight time-table ordinarily required under the scheme of Part 5.3A of the law before a deed is executed, that many administrators appointed pursuant to s 436A would wish, or have the opportunity, to avail themselves of the powers given under ss 596A or 596B, unless they were also subsequently appointed as administrators under a deed.' 160 As I have already observed, the 1992 Act amending the Law replaced the external administration of official management with administration and with administration of a company's affairs with a view to executing a deed of company arrangement. 161 It was necessary, therefore, to make consequential changes to Part 5.9 to delete reference to an official manager and to include the new form of external administration provided for in Part 5.3A. 162 The substitution of administrators and administrators of a deed of company arrangement for official managers merely recognised the changes in the kinds of external management provided for by the 1992 Act. 163 The Explanatory Memorandum which the Attorney-General, Mr Duffy, tabled at the conclusion of his second reading speech on the Corporate Law Reform Bill, which became the 1992 Act, states: ' "eligible applicant" 344. The proposed definition of "eligible applicant" sets out the persons who may apply under proposed sections 596A and 596B for the examination of a person about a corporation. The list of persons is similar to the list in existing subsection 597(1), except that an administrator of a corporation and an administrator of a deed of company arrangement, who may be appointed under the new administration procedure proposed by Part 5.3A, have been added. In the light of the proposed repeal of the official management procedure currently provided by Part 5.3, official managers have been omitted from the list of eligible applicants.' 164 It seems to me, with respect, that the changes to which Ormiston J refers do not indicate so much an expansion of the class of persons who might seek an order under Part 5.9 but merely recognise the different forms of external administration in the 1992 Act. 165 Section 597, prior to the 1992 Act, permitted the then regulatory authority to authorise any person to make an application under that section. The same was the case after the 1992 Act. There is nothing in the inclusion in the definition of 'eligible applicant' of a person so authorised which supports a conclusion that the class of persons who may apply for an examination summons has been widened. 166 I cannot therefore agree that a wider class of persons authorised to make applications under s 596A and s 596B has been identified so as to make the decisions and the dicta in previous cases under s 597 subject to any qualification. 167 Ormiston J then considered the purpose to be served by giving power to administrators under deeds to apply for orders for the examination of examinable officers. He said at 333: 'In my opinion that purpose, shortly, is to enable the prompt and effective carrying out of the scheme contained in a deed of company administration. Any proper inquiry into the "examinable affairs" of the corporation which will fairly conduce to that end may be affected by an examination sought by such an administrator. On the other hand, if the examination be sought for private purposes, oppressively or for any purpose not genuinely related to the administration, then a person adversely affected can complain to the court that the relevant power is being used for purposes foreign to those for which it is conferred. But, bearing in mind the variety of company arrangements which are now permitted under the Law, an examination intended to assist the enforcement of the rights or claims of relatively few persons affected by an arrangement may nevertheless be proper and appropriate. The legislature, it would seem, has acknowledged the benefits that deeds of this kind can provide to both companies and creditors and has therefore given explicit power to administrators to apply for examinations upon the same basis as liquidators have applied in the past, but with the added benefits of the new procedures laid down in the 1992 amendments.' 168 Part 5.3A of the Corporations Law which, prior to 1992, dealt with official management, was repealed by the 1992 Act and a new Part 5.3A was inserted. There are no relevant differences between Part 5.3A of the Corporations Law and Part 5.3A of the Act. 169 Part 5.3A is headed 'Administration of a company's affairs with a view to executing a deed of company arrangement'. 170 Section 436A empowers a company to appoint an administrator of the company if the directors have resolved that the company is insolvent or likely to become insolvent at some future time and an administrator should be appointed. Section 436B entitles a liquidator to appoint an administrator to the company and the liquidator may appoint himself or herself. Section 436C permits a person who is entitled to enforce a charge on the whole or substantially the whole of the company's property to appoint an administrator. 171 Once appointed, the administrator must convene a meeting of the company's creditors in order to determine whether to appoint a committee of creditors and, if so, who are to be the committee's members: s 436E. 172 At that meeting, the company's creditors may, by resolution, remove the administrator from office and appoint someone else as administrator of the company: s 436E(4). 173 Whilst the company is under administration the administrator has control of the company's property and affairs and may carry on the business and manage that property and those affairs: s 437A. 174 Section 438A obliges the administrator, as soon as practicable after his or her appointment, to investigate the company's business, property, affairs and financial circumstances and to form an opinion about whether it would be in the interests of the company's creditors for the company to execute a deed of company arrangement; whether it would be in the creditors' interests for the administration to end; and whether it would be in the creditors' interests for the company to be wound up. 175 Within 21 days of the administration beginning, the administrator must convene a meeting of the company's creditors: s 439A(1). 176 At that meeting, the creditors may resolve that the company execute a deed of company arrangement or that the administration should end or that the company be wound up: s 439C. 177 Where the creditors resolve that the company execute a deed of arrangement, the administrator becomes the administrator of the deed unless the creditors otherwise resolve: s 444A(2). The administrator then has an obligation to prepare an instrument setting out the terms of the deed which must include the following: '444A(4) The instrument must also specify the following: (a) the administrator of the deed; (b) the property of the company (whether or not already owned by the company when it executes the deed) that is to be available to pay creditors' claims; (c) the nature and duration of any moratorium period for which the deed provides; (d) to what extent the company is to be released from its debts; (e) the conditions (if any) for the deed to come into operation; (f) the conditions (if any) for the deed to continue in operation; (g) the circumstances in which the deed terminates; (h) the order in which proceeds of realising the property referred to in paragraph (b) are to be distributed among creditors bound by the deed; (i) the day (not later than the day when the administration began) on or before which claims must have arisen if they are to be admissible under the deed.' 178 Once executed, the deed of company arrangement binds all creditors and a person bound by the deed cannot make an application for an order to wind up the company: s 444D and s 444E. 179 A deed may terminate by operation of the deed itself; by resolution of the company's creditors; or by court order: s 445C. 180 The purpose of Part 5.3A is to provide a form of external administration which commences with the appointment of an administrator and concludes with a deed of company arrangement. The intention of the legislation is that the company should move from administration to administration under a deed of company arrangement. 181 In the Explanatory Memorandum it was stated: '444. The proposed new Part 5.3A will provide for an administrator to take over the affairs of a company, with a view to developing a "deed of company arrangement", under which the company might be restored to financial health. Proposed amendments to section 9 will define "administrator" to mean either the administrator initially appointed to take over the affairs of the company or the person who administers the deed of company arrangement. The person who administers the deed of company arrangement (who will be appointed by the company's creditors) may be the same person as the person initially appointed to take over the affairs of the company (who will be appointed by the directors, the liquidator or a major creditor of the company), but this need not necessarily be the case. 445. Proposed Part 5.3A will contain 17 Divisions which will deal with all aspects of the administration of a company, the preparation of a deed of company arrangement and the operation of that deed. In particular, the proposed Part will deal with: · who may appoint an administrator and the first meeting of creditors to appoint a committee of creditors and, where appropriate, to replace the administrator (proposed Division 2); · the powers and duties of an administrator (proposed Divisions 3 and 4); · the meeting of creditors which considers the administrator's recommendation about what should be done with the company (proposed Division 5); · the protection of the company's property and the rights of chargees and others, during the period of administration (proposed Divisions 6-8); · the administrator's liability and indemnity for the debts incurred during the administration (proposed Division 9); · the execution and effect of a deed of company arrangement (proposed Division 10); and · the variation, termination and avoidance of a deed of company arrangement (proposed Division 11).' 182 The 1992 Act amended the definition of 'externally-administered body corporate' to delete the reference in paragraph (c) of that definition to official management and to include a new paragraph (c) and paragraph (ca) so that the definition now reads: 'externally-administered body corporatemeans a body corporate: (a) that is being wound up; or (b) in respect of property of which a receiver, or a receiver and manager, has been appointed (whether or not by a court) and is acting; or (c) that is under administration; or (ca) that has executed a deed of company arrangement that has not yet terminated; or (d) that has entered into a compromise or arrangement with another person the administration of which has not been concluded.' 183 In my opinion, there is nothing remarkable at all about the legislature including administrators and administrators under a deed of company arrangement within the definition of eligible applicant. 184 Indeed, it would have been a defect in the 1992 Act had they not been included. The 1992 Act provided for a system of external administration short of liquidation and not under the control of a receiver to replace an existing form of external administration of the same kind. 185 Because an official manager was a 'prescribed person' under the Law prior to the 1992 Act, it was only logical and indeed consistent to include administrators and administrators under a deed of company arrangement as persons who might make application for examination summonses under Part 5.9 of the 1992 Act. 186 Ormiston J said in Flanders v Beatty at 335: ' Nevertheless it is unnecessary to doubt the opinion expressed in Worthley's case that under the unamended provisions of s 597 it was necessary to show that the proposed examination was for the benefit of the corporation, its contributories or its creditors. What is clear, however, is that the scope of the examination provisions was greatly expanded by the 1992 amendments. Though I would doubt that the former section was intended to be constrained by any need to ensure that an examination was for the company's benefit in the sense of keeping the company alive by paying out its creditors, it was part of a scheme derived from liquidators' examinations. Liquidators, it is accepted, owe certain duties to the company, whatever be the outcome of the winding up: cf Commissioner for Corporate Affairs v PW Harvey [1980] VR 669 at 691-2 and 695 and the cases there cited. Now the powers given under s 596A to 597B are clearly so wide and so easily exercised by "eligible applicants' (cf s 596A) that the purposes to be served by examinations ought not be limited by reference to the benefit of the company or its creditors or contributories. The objects to be served by the issue of an examination summons and the making of orders for examination should be discerned only by reference to the statutory provisions which invest those powers. If those powers are being used for oppressive purposes or to serve ends entirely outside the scope of the sections, such as to gather evidence for libel proceedings, then the court will intervene to prevent the examination. As to the precise ambit of the power of the commission to authorise applications under the new sections, it is unnecessary to express any further opinion.' 187 In my opinion, Ormiston J is right when he said that Re Excel standsfor the proposition that the proposed examination must be for the benefit of the corporation, its contributories or its creditors. 188 I do not, however, with respect, agree that the scope of the examination provisions have been greatly expanded by the 1992 amendments. 189 Ormiston J is undoubtedly correct when he said that the 1992 Act extended the ambit of the inquiry by including in the definition of examinable affairs the business affairs of a connected entity insofar as they are relevant to the examinable affairs of the corporation. However, that matter by itself does not mean that previous decisions bearing upon the purpose of Part 5.9 are no longer relevant. 190 The third matter relied upon by Ormiston J does not support a conclusion that the reach of Part 5.9 has been widened. Part 5.3A and the amendments to Part 5.9 in the 1992 Act were implemented in response to recommendations by the Australian Law Reform Commission in the report on its 'General Insolvency Inquiry' (the Harmer Report). 191 The Attorney-General's Explanatory Memorandum states in relation to s 596A and s 596B: 'Proposed section 596A - Mandatory examination 1152. A significant difference between the personal bankruptcy and company insolvency examination provisions is that, in bankruptcy, the trustee is entitled to examine the bankrupt without first having to obtain a court order. By contrast, in the winding up of an insolvent company, the liquidator must obtain a court order for an examination under subsection 597(2) of the Corporation Law. 1153. The Harmer Report suggested that the formalities and expense involved in obtaining a court order may be a deterrent to the use of the procedure, and was of the view it would be consistent with the duty on directors of an insolvent company to assist the liquidator in the winding up if the right to examine such a person could be exercised as conveniently and inexpensively as in bankruptcy. It thus recommended that: - There be provision for the examination without court order of any person who is acting or who has within 2 years immediately before the commencement of the winding up acted in the capacity of a director, secretary, executive officer, administrator, receiver or liquidator of a company that is being wound up in insolvency. (The term used to describe such persons in the proposed amendments is "examinable officers", which is to be defined in section 9.) - A liquidator should have express power to require production of documents either from the examinee (the documents might in that case be required in the summons for examination) or by way of an order for production of documents directed to third parties who may have possession of documents relevant to the examination at the time of issue of the summons for such an examination. 1154. Proposed section 596A will provide that the Court is to summon a person for examination about a corporation's examinable affairs where application for the summons is made by an "eligible applicant" (to be defined in section 9 to mean the ASC, a liquidator or provisional liquidator, an administrator of a corporation, an administrator of deed of company arrangement, or a person authorised by the ASC) and the person is or was, within the previous 2 years, an "examinable officer" (also to be defined in section 9) of the corporation. 1155. The intention is that the Court will issue the summons where it is satisfied that the person's connection with the company is such that the person is an examinable officer, without the need to inquire further into such matters as whether that person has taken part or been concerned in the examinable affairs of the corporation, been guilty of misconduct in relation to the corporation or is able to give information about examinable affairs of the corporation. It is envisaged that the issue of a summons in such circumstances will be a formality, and that the respective Court rules may provide for execution of the function by a Registrar or equivalent official, where appropriate. Proposed section 596B - Discretionary examination 1156. This section will implement the Harmer Report's recommendation that where a person is not within the category of "examinable officer" but may, nonetheless, be able to provide information relating to the affairs of the company, the requirement for an order for examination should be retained. 1157. Proposed subsection (1) will provide for the issue of a summons to a person (other than an "examinable officer"), at the discretion of the Court, in circumstances where the application for a summons is made by an "eligible applicant" (to be defined in section 9) and the Court is satisfied that the person has taken part in, or may be able to give information about the "examinable affairs" (also to be defined in section 9) of the corporation. These requirements will largely replicate existing paragraphs 597(2)(a) and (b), which will be omitted by paragraph 117(a). 1158. Proposed subsection (2) provides that this section will have effect subject to proposed section 596A.' 192 Parliament enacted s 596A to make it easier for an 'eligible applicant' to examine 'examinable officers' because it wished to simplify the procedure and bring it into line with the bankruptcy procedure. In doing so, it recognised that a corporation's examinable officers should always be available to eligible applicants for examination under this section. 193 I do not agree that because s 596A is mandatory in its terms the section's purposes have changed. 194 In my opinion, there is nothing in the 1992 Act which derogates in any way from the underlying assumption in the reasons of the Court in Re Excel that the purpose in seeking the examination summons must be in the interests of the corporation, its creditors or its contributories. 195 The Full Court of the Supreme Court of South Australia has recently considered s 596A and s 596B in Sandhurst Trustees Ltd v Harvey (2004) 88 SASR 519. 196 Normans Wines Ltd (Normans) was a winemaker which, in 1999, invited members of the public to subscribe for convertible unsecured notes. Pursuant to s 1052 of the Act, a trustee for holders of the notes was appointed in accordance with a complying trust deed: s 1054. A prospectus was to issue in connection with the invitation. The note holders' trustee was Sandhurst Trustees Ltd (Sandhurst). Sandhurst's obligations under the Act were to protect the interests of the note holders. 197 Deloitte Touche Tohmatsu (Deloitte) was retained as Normans' auditor, on the appellant's case, to audit Normans' accounts, financial statements and reports required of Normans under the deed and to provide an opinion whether any relevant financial information had come to light which was not included in the prospectus. Deloitte was required to consider whether Normans' were likely to be able to meet interest obligations. 198 In 2001, Normans went into liquidation with no prospects for the note holders recovering the monies owed to them. 199 Sandhurst commenced proceedings in September 2002 claiming that Deloitte had owed a duty of care to Sandhurst, as trustee for the note holders, which was breached by Deloitte's failure to report on certain matters and its omission of relevant information from the prospectus. 200 On 18 June 2003 ASIC authorised Sandhurst to make application under Part 5.9 of the Act in relation to Normans. On 23 June 2003 Sandhurst sought to examine two employees of Deloitte, Ms Flower and Mr Harvey (the examinees) under s 596B of the Act and on that day a Master of the Court made an order for their examination and the production of certain documents. No order could have been made under s 596A because the examinees were not 'examinable officers'. 201 On 26 June 2003 the examinees applied for an order setting aside the examination orders. A Master of the Court made that order on the ground that Sandhurst was not authorised by the provisions of the trust deed to apply for examination orders. 202 Sandhurst appealed to the Full Court of the Supreme Court of South Australia. 203 The central issue identified by Doyle CJ on appeal was the scope of the discretion conferred by s 596B of the Act and whether there were sufficient circumstances to warrant the issue of summonses pursuant to that discretion. 204 Doyle CJ particularised the parties' contentions. In doing so, he identified at 525 [26] one of the respondent examiners' arguments (the other arguments are not relevant to this case): 'His second submission was that even if Sandhurst had an arguable cause of action, the power conferred by s 596B is not able to be exercised for the sole or predominant purpose of assisting a single creditor or class of creditors (the note-holders or Sandhurst, if Sandhurst in fact had suffered a loss), there being (according to the submission) no benefit to the corporation with which Deloitte dealt or whose examinable affairs were the subject of inquiry (Normans), and no benefit to its contributories or creditors generally. He submitted that an examination order made simply to advance the interest of a particular creditor or class of creditors was made for a purpose foreign to the power conferred by s 596B.' 205 He referred to the differences between s 596A and s 596B and previous decisions including Re Excel and Flanders v Beatty, and said at 526 [32]: ' The statutory provisions as they now stand are wider in their reach than their predecessors. The nature of the recent changes in these provisions is conveniently summarised by Ormiston J, with whom the other members of the Full Court of the Supreme Court of Victoria agreed, in Flanders (at 331-332) as follows: Undoubtedly the scheme for compulsory examination forms, and has for over 150 years formed, part of the law relating to companies and, now, "corporations". What originally was a means for obtaining information in the course of a liquidation as to a company's affairs by means of a private examination was expanded over the years, as a response to notorious company frauds in the 1890s and 1960s, by giving similar powers in a variety of circumstances to seek examinations, usually held in public, as to the conduct of officers and others suspected of fraud, breach of trust and other misconduct: see the examination by this Court of the history of the relevant sections up to and including the merged provisions of s 541 of the Companies Code in Friedrich v Herald & Weekly Times Ltd [1990] VR 995, especially at 999-1004. In the short period since that decision, the provisions relating to examinations have been twice re-stated, though in relation to s 597 of the Law in its original form almost all of what was said by the court in Friedrich's case, and by the High Court in Hamilton v Oades (1989) 166 CLR 486, still remained applicable. However, what remains of s 597 and what is contained in the new s 596A to s 596F and s 597A and s 597B, as amended and inserted (respectively) by the Corporate Law Reform Act 1992, has radically altered the scope of, and procedure relating to, examinations, albeit that the subject matter of an examination is little altered so far as the company itself is concerned. In the first place, the range of possible applicants has been extended. Secondly, the new definition of "examinable affairs" includes the "affairs" of the corporation but has now been extended to cover the "business affairs" of "connected entities", although the definition of "affairs" in s 53 is barely altered and in fact was and is little different from the definition contained in s 6 of the Code. Thirdly, it may be said that the principal change effected by these amended provisions is that an "eligible applicant" now may obtain as of right an order for the issue of a summons for the examination of any "examinable officer" (widely defined) of a corporation who is shown to have held office within two years of the commencement of the administration or winding up: s 596A. Alternatively, in respect of any other person (or any examinable officer who held office before the two-year period), the court is given a discretion, expressed in not dissimilar terms to that given by the former s 597(2), to order that such a summons for examination do issue if satisfied that the person has been or may have been guilty of "misconduct" (defined to include fraud, negligence and breach of duty) in relation to a corporation or otherwise may be able to give information about the "examinable affairs" of a corporation: s 596B.' 206 For reasons already given, I do not agree that the statutory provisions are now wider in their reach than their predecessors except to the narrow extent already mentioned by including 'business affairs' in 'examinable affairs'. I do not think that the first of Ormiston J's reasons is correct having regard to the 1992 Act. I have already said that a corporation's examinable affairs are wider than under the Corporations Law when 'affairs' was the criterion. The third matter is one of procedure only. 207 Doyle CJ continued at [32] on 527: 'As I have just observed … the purpose for which the power is conferred is indicated by the provisions of s 596B(1)(b), although indicated only in general terms. In a loose sense, the purpose can be said to be the gathering of information about the matters referred to in subcll (i) and (ii).' 208 There can be no doubt that s 596B(1)(b) assists in determining the purpose for which the power is given. However, that subsection cannot be considered in a vacuum. Section 596B(1)(b) identifies the information that may be gathered but does not by itself indicate the purpose to which the information is to be applied. The purpose for which the powers are given in both s 596A and s 596B must be gleaned from previous provisions of the same kind; various amendments to the legislation; the definitions of 'eligible applicants' and 'examinable affairs'; and the whole of Part 5.9. 209 Certainly, s 596B(1)(b)(i) indicates that one purpose is to summon for examination any person who has taken part in the corporation's examinable affairs and may have been guilty of misconduct. 210 Misconduct includes fraud, negligence, default, breach of trust and breach of duty. The misconduct there contemplated is the misconduct of that person in relation to the corporation not in relation to a third party: s 596B(1)(b)(i). The purpose of that sub-paragraph when considered with the other matters is to make that person available to ASIC or some other appropriate 'eligible applicant' so that the person might be examined about his or her misconduct insofar as it has affected, or might affect, the corporation. It must be remembered that both s 596A and s 596B empower the Court to order a person to be summoned 'for examination about a corporation's examinable affairs'. 211 It is the corporation's 'examinable affairs' about which the examinable officer or other person is to be examined. In s 596B(1)(b)(i), the person is liable to be summoned if that person has taken part or been concerned in examinable affairs of the corporation and has been or may have been guilty of misconduct in relation to the corporation. 212 Therefore, the purpose of the examination identified under s 596B(1)(b)(i) is to empower an eligible applicant to examine that person about the corporation's examinable affairs. 213 Of course, in many cases, an examination of the examinable officer or other person in relation to the examinable affairs of the corporation will mean inquiring into the corporation's dealings with third parties. 214 However, it must not be overlooked that the purpose of the power is to inquire into the examinable affairs of the corporation. 215 Section 596B(1)(b)(ii) also empowers the Court to summon a person for examination about the corporation's examinable affairs if that person may be able to give information about examinable affairs of the corporation. 216 In that case, as under s 596B(1)(b)(i), the purpose of the inquiry is in relation to the examinable affairs of the corporation. 217 The power is not given for the purpose of enabling a third party to examine that person to determine whether that person has been guilty of misconduct directed to a third party. 218 Sub-paragraph 596B(1)(b)(i) is directed to allowing the company, through its appropriate external manager, ASIC or some appropriate person authorised by ASIC to inquire into that person's conduct in relation to the corporation. 219 After considering the authorities, to which I have referred, Doyle CJ said in Sandhurst Trustees v Harvey at 531-532: 'This line of decisions establishes that the discretion conferred by s 596B is a wide one. It is to be exercised to enable inquiry to be made into the examinable affairs of a corporation, with a view to exposing misconduct (which might attract civil or criminal sanctions, or possibly action by a body such as a professional regulator) or which might provide information that will advance (in a broad sense) the external administration of the corporation in question. The fact that a consequence of an examination order may be a forensic advantage to a particular class of creditors, or to a particular creditor, of the corporation, or to a particular person, does not of itself lead to the conclusion that the order was not made for a proper purpose. Nor does the fact that the order was made at the instance of that person or creditor. On the other hand, the power is not conferred with a view to its exercise solely to benefit an individual with a claim of some kind against the corporation in question, or with a claim arising out of its affairs. Nor, I consider, is it conferred to enable an applicant for an order to pursue an inquiry into a matter in relation to which the applicant has no legitimate interest.' 220 I agree with those observations. Particularly, I agree that the discretion conferred by s 596B is to provide information to an eligible applicant, in the case of ASIC, with a view to exposing misconduct and, in the case of other eligible applicants, to provide information that will advance the external administration of the corporation. 221 I agree that the consequences to which Doyle CJ has referred do not mean that the examination summons has been sought for an improper purpose. 222 I also agree that the power is not conferred for the benefit of any individual creditor who seeks to advance his or her own interests without any regard for the corporation's interests. 223 In Sandhurst the Court held that the examinations had been properly ordered. An examination with a view to determining whether Deloitte was in breach of duty to Normans was a purpose which fell within the intended operation of s 596B, for the following reasons: