Section 596A of the Australian Corporations Act 2001 (Cth) provides a mechanism for an “eligible applicant” (usually an administrator, liquidator, or the Australian Securities and Investment Commission) to examine current or former officers or provisional liquidators of a corporation in regards to that corporation’s examinable affairs. This power, along with the discretionary examination power in s 596B, is a powerful tool to aid liquidators in the performance of their statutory functions and powers, including investigating and locating the assets of the corporation and any rights or obligations that may be realisable. There are analogous provisions in the insolvency regimes of most developed insolvency jurisdictions. The constitutionality of s 596A was recently unsuccessfully challenged in two proceedings heard together before the High Court of Australia, Palmer v Ayres and Ferguson v Ayers.
A s 596A examination is conducted under the supervision and control of the court. The examinee must not make false or misleading statements or refuse to answer questions, but may claim the privilege against self-incrimination before giving an answer, thereby protecting him or herself from the use of that answer against him/her in criminal or penalty proceedings. The signed written record of the examination may otherwise be used as evidence against the examinee in any legal proceedings.
The plaintiffs in Palmer v Ayres and Ferguson v Ayers were former directors of Queensland Nickel Pty Ltd (“QN”), including Australian mining magnate turned Federal Member of Parliament, Clive Palmer. QN was wound up in insolvency by the Federal Court of Australia, with Special Purpose Liquidators also subsequently appointed (“the SPLs”). The SPLs obtained from the Federal Court orders for examination of Palmer and Ferguson pursuant to s 596A. Palmer and Ferguson each filed a writ of summons in the High Court, alleging that s 596A was invalid as contrary to Chapter III of the Constitution in that it confers non-judicial power on federal courts and in any event does not constitute a “matter” as required by the Constitution, because a s 596A examination is an inquisitorial or investigative exercise.
The Court unanimously upheld the constitutionality of s 596A.