Liquidators’ examinations – not the same judicial restraint in Australia as in England and NZ

As the Full Federal Court has just confirmed, an Australian liquidator may conduct a public examination of a prospective or actual defendant to the liquidator’s claim in order to assess the worth of that person in being able to meet any judgment that the liquidator might obtain.

But as the New Zealand Court of Appeal tells us, Australian courts go too far, and based on limited authority, in contrast to the more restrained and correct approaches taken in NZ and England.    

The Australian approach has long been established under our law and it has now been reaffirmed by the Full Federal Court in Pleash v Tucker, 29 August 2018,[1] referring to cases such as Grosvenor Hill[2] and Wainter.[3]

However, on the particular point in question, the assets on which the liquidator sought to examine were held not to be those of the director, whose interest was only as the beneficiary of a discretionary trust.

New Zealand disagrees

New Zealand courts often provide a useful counter to long established Australian law.  They have regard to Australian decisions but are unconstrained by precedent and court hierarchy.[4]

In 2017, in Finnigan v Ellis [5] the New Zealand Court of Appeal questioned the principles upon which Australian case law relied on this point, in particular in Grosvenor Hill, contrasting it to the preferred more constrained approach taken by courts in New Zealand, and England.

That constraint recognises, the NZ Court of Appeal said, that because of the very wide scope of the powers of a liquidator, the courts have been concerned to ensure that they are not used oppressively, vexatiously or unfairly.

In analysing Grosvenor Hill, where the Australian Court relied on a power ‘said to be “a power of long standing”’, the NZ Court of Appeal noted [24] that Grosvenor cited

“early English case law on the general purposes underlying the examination powers (none of which goes so far as to permit examination on a prospective defendant’s judgment worthiness) as a springboard for finding that the scope of those powers is broad enough to allow a liquidator to obtain information from a defendant or potential defendant as to their judgment worthiness”.

It continued:

[25] Since Grosvenor Australian courts have accepted they have jurisdiction to order examination and production of information relevant to judgment worthiness and they have usually exercised the discretion in favour of liquidators. The courts have allowed liquidators to seek personal tax returns, copies of personal bank statements, and statements of assets and liabilities. …”.

The NZ Court of Appeal referred to the legal tensions between the rights of liquidators and protecting those of examinees, and then, perhaps rather tartly, said:

“[36] However, such tensions have not led to the same level of restraint in Australia as there has been in England and in New Zealand. In Australia the gathering of private financial information from an examinee in order to assess judgment worthiness is now unremarkable and commonplace …”.

Should Grosvenor Hill be reconsidered?

A submission was made in Pleash v Tucker that in any event Grosvenor Hill should be reconsidered and that the ‘affairs of the company’ should not extend to documents going to the worth of a potential defendant.

Given, among other points, that the decision in Wainter was a decision of the Full Court, the Full Court in Pleash v Tucker did not consider its matter was an appropriate vehicle for further consideration of that question.

Discretionary trust issue already decided in NZ

As to the point on which the appeal of the liquidator in Pleash v Tucker failed, and to inability of a liquidator to inquire into discretionary trust assets, the same outcome had earlier been decided in New Zealand in 2003.

In coming to that decision in Hunt v Muollo[6] the NZ Court of Appeal said that

“[13] … It could be argued, for example, that the financial affairs of the judgment debtor’s rich uncle could be investigated because the judgment debtor had an expectation or hope of receiving a gift or bequest from him”,

Saying that there was “little difference in principle between that example and the case of a wholly discretionary beneficiary of a trust”

But

“if the trust were a fraud on creditors or a sham, different considerations would apply…”.

Comity

The Full Federal Court of Australia in Pleash v Tucker did not refer to either decision of the NZ Court of Appeal.

 

[1] [2018] FCAFC 144

[2] [1994] FCA 921

[3] Wainter Pty Ltd, in the matter of New Tel Limited (in liq) [2005] FCAFC 114;

[4] See for example Timberworld v Levin [2015] NSCA 111, cited in Keay’s Insolvency, 10th ed, 2018, at [5.185], [[14.120].

[5] [2017] NZCA 488; cited in Keay’s Insolvency, 10th ed, 2018, at p 586.

[6] [2003] NZCA 66; [2003] 2 NZLR 322

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