Law

Public Examination and the Court’s reluctance to move away from the default position

By 8 July, 2019 No Comments

In the recent decision of Robert Michael Kirman and William James Harris as joint and several liquidators of GH1 Pty Ltd (Receivers and Managers Appointed) (in liq) [2019] WASC 45, the Court determined that the likelihood of criminal charges being laid in the future against an examinee of a liquidator’s examination, is not sufficient grounds to constitute ‘special circumstances’ under section 597(4) of the Corporations Act 2001 (WA) (Act).

A copy of the full decision can be found here.

Background

Ms Tina Michelle Bazzo was the sole director and sole company secretary of GH1 Pty Ltd.  From 2008 onwards, Ms Bazzo and her long term de-facto partner, Mr Allen Bruce Caratti were the focus of ongoing investigations conducted by the Federal Police and Australian Taxation Office (ATO).  In 2017, GH1 Pty Ltd went into liquidation and the liquidators, Mr Robert Michael Kirman and Mr William James Harris, sought to conduct an examination of the directors of the company.

Ms Bazzo and Mr Caratti sought orders from the Court to allow for the examinations to be conducted in private rather than in public.  This application was based on a similar order granted in the matter of  Courtenay House Capital Trading Group Pty Ltd (in liq) [2018] NSWSC 604.  Ms Bazzo and Mr Caratti wanted the examinations conducted privately because of the long-term investigations into their affairs and the “risk of prejudice to a future prosecution…”.

Decision

Conducting examinations in public is the default position, which is identified in section 597(4) of the Act, and upheld in Courtenay House Capital Trading Group Pty Ltd (in liq) [2018] NSWSC 604.  Justice Martin confirmed that examinations are to be conducted in public, provided that there are no special circumstances.  His Honour considered whether Ms Bazzo and Mr Caratto had shown sufficient evidence to support a claim of special circumstances.

His Honour distinguished this case from preceding decisions on the basis that Ms Bazzo and Mr Caratti were co-operative about their participation in examinations.  Ms Bazzo and Mr Caratti did not refuse to participate, however, they requested that their participation be in private based on special circumstances.

Special circumstances is not defined within the Act, and previous decisions have found that special circumstances exist where related criminal charges are pending against the examinees.  Ms Bazzo and Mr Caratti did not have any pending charges, however, there was a high likelihood that criminal charges would be laid against them in future, resulting from the ongoing investigations by the Federal Police and the ATO.

His Honour found that Ms Bazzo and Mr Caratti did not meet the requirements of special circumstances to allow for the examinations to be conducted in private.  The application was therefore dismissed.

Key Takeaways

The Court has adopted a narrow approach in interpreting “special circumstances”, as the intention of the Act is for examinations of company directors be held in public.

A Court will therefore be reluctant to deviate from conducting examinations in public; circumstances where potential criminal charges may be laid against examinees is unlikely to cause an examination to be privately held.

If you require our assistance, or have any queries about this decision or insolvency in general, please contact Aaron or Elizabeth on (08) 6188 3340, aaron@pragma.law or elizabeth@pragma.law.

 

 

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