ARE YOU AN EXTERNAL ADMINISTRATOR BEING QUESTIONED BY CREDITORS?
Or, are you a creditor of a liquidated company seeking information?
Legislative changes commencing in 2017 conferred additional power on creditors of companies in external administration. The additional powers included a right for creditors to obtain information and records from an external administration.
INTRODUCTION OF THE POWER
The above power was introduced by The Insolvency Practice Schedule (Corporations) (IPSC) (Schedule 2 to the Corporations Act 2001 (Cth)). Recently, the extent and use of the powers have been examined in cases before the Court.
When requested to do so by a creditor, an external administrator must provide information, reports and documents relevant to the external administration. However, there are exceptions and an external administrator does not have to comply with a request if it falls within an excepted category. An exception applies if:
- complying with the request would substantially prejudice the interests of one or more creditors or a third party and that prejudice outweighs the benefits of complying with the request;
- the information, report or document would be privileged from production in legal proceedings on the ground of legal professional privilege;
- disclosure of the information, report or document would found an action by a person for breach of confidence;
- there is not sufficient available property to comply with the request;
- the information, report or document has already been provided;
- the information, report or document is required to be provided under the Corporations legislation within 20 business days of the request being made;
- the request is vexatious.
RELEVANT CASE LAW
The extent of creditors’ powers, and the scope of the exception, have been analysed in the case of 1st Fleet Pty Ltd (in liquidation)  NSWSC 6.
The voluntary administrators, and subsequent liquidators, of 1st Fleet Pty Ltd (in liquidation) were paid $4.4 million in fees between April 2012 and July 2018. A creditor of 1st Fleeet sought information, documents and records from the liquidators in relation to the reasonableness of the fees they had received.
The liquidators objected to providing the information, arguing that it was vexatious because the creditor hadn’t shown a need for the information requested. The liquidator also argued that the volume of requests made was vexatious.
The Court did not agree with the liquidators and ordered that they make the information available to the creditor. The Court was guided by the Explanatory Memorandum of the IPSC which provided that:
“the current regulatory barriers to creditors obtaining information entrenches the inherent problems creditors face in assessing the quality of insolvency services provided.”
Creditors’ rights to information can be far reaching and impose a significant burden on liquidators. The “reasonableness” of a request seems likely to be broadly interpreted and, when a request does not fall within one of the defined exceptions, a refusal to provide information could have adverse costs consequences. Liquidators will need to think carefully before rejecting a request for information.
If you are a liquidator facing a questionable request for information or a creditor of a liquidated company seeking information from a liquidator, Steven Brown of Lynn & Brown Lawyers is well-positioned to assist you with commercial law advice.
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