Australia: Administrators and liquidators must take information requests seriously: Cost consequences for non-compliance

In the recent case of 1st Fleet Pty Ltd (in liquidation), the Court clarified the information disclosure obligations of external administrators in the Insolvency Practice Schedule (Corporations) (IPSC) and Insolvency Practice Rules (Corporations) 2016 (Rules).

There is only a short time period for compliance, and there can be cost consequences for non compliance.

The decision provides practical guidance to external administrators in responding to information requests from creditors and other interested parties, including the Commonwealth.

Background

The information disclosure provisions in Division 70 of the IPSC apply to ‘external administrators’ of a company, including administrators and liquidators.

Importantly, a receiver, receiver and manager, or controller will not be considered an ‘external administrator’ under the provisions.

Information, reports or documents may be sought from an external administrator under Division 70 by:

  • the creditors of the company (individually or by resolution)
  • the members of the company in a members’ voluntary winding up (individually or by resolution)
  • the Commonwealth (either as a creditor or following the actual or anticipated receipt of a claim for financial assistance in relation to unpaid employee entitlements).

Upon receipt of a request, an external administrator must provide the information, report or document within five business days, unless a longer period is agreed.

Requests from an individual creditor

Under section 70-45 of the IPSC, an external administrator must comply with a request unless:

  • the information, report or document is not relevant to the external administration of the company
  • they would breach their duties in relation to the external administration if they complied with the request
  • it is otherwise not reasonable for them to comply with the request.

The Rules may prescribe circumstances in which it is or is not reasonable for an external administrator to comply with a request.

Rule 70-15(2) provides that it is not reasonable for an external administrator to comply with an individual creditor’s request for disclosure of information, reports or documents if the external administrator, acting in good faith, is of the opinion that:

  • 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 disclosure would be privileged from production in legal proceedings because of legal professional privilege;
  • the disclosure would found an action by a person for breach of confidence;
  • there is not sufficient available property to comply;
  • it has already been provided;
  • it is required to be provided under the Corporations Act 2001 (Cth) within 20 business days of the request being made; or
  • the request is vexatious.

A request may be taken to be vexatious if the external administrator receives the request within 20 business days of receiving a similar request from the creditor.

An external administrator cannot refuse under (d), (e) or (f) if the creditor agrees to pay the cost of complying with the request and, if requested by the external administrator, security for the cost of complying with the request is provided.

Section 70-90(1) of the IPSC enables a person who has made a request to apply to the Court for an order that the external administrator provide all or part of the requested material.

Under section 70-90(3) of the IPSC, the Court can make orders regarding the provision of the requested material, including orders as to costs.

The recent decision of 1st Fleet

Justice Black considered the application of these provisions in the case of In the matter of 1st Fleet Pty Ltd (in liquidation) [2019] NSWSC 6.

The Commonwealth sought a range of information and documents after having paid more than $9 million to employees under the General Employee Entitlements and Redundancy scheme and the Fair Entitlements Guarantee scheme. The liquidators complied with some aspects of those requests but declined to provide information relating to their remuneration.

The Commonwealth was concerned as to the reasonableness of the liquidators’ remuneration, which was more than $4 million over six years. The committee of inspection had approved the remuneration, and there was a representative of the Deputy Commissioner of Taxation on the committee.

The Commonwealth was concerned that the committee of inspection was not authorised to approve the remuneration, having regard to the eligibility of certain persons appointed to the committee.

In relation to the remuneration, the Commonwealth requested that the liquidators provide information and documents containing a breakdown of the calculation of each payment made to the liquidators and identifying:

  • each person for whose work a charge has been made
  • the number of hours that person worked
  • the hourly charge-out rate for that person
  • a description of the work done by that person.

In seeking the information and documents, the Commonwealth relied primarily on section 70-45 of the IPSC (as an individual creditor) and section 70-55 of the IPSC (having advanced funds in relation to unpaid employee entitlements).

In respect of section 70-45 of the IPSC, Justice Black accepted the Commonwealth’s submission that it would only be reasonable for an external administrator to refuse a request if the liquidators, acting in good faith, were of the opinion that one of the exceptions in the IPSC or the Rules applied.

In respect of section 70-55 of the IPSC, Justice Black considered that, provided it satisfied the precondition in section 70-55(1) concerning financial assistance for unpaid employee entitlements, the Commonwealth could specify the information it sought without restriction. Relevantly, his Honour found that the language of the provisions does not limit the nature of the information that may be requested.

Some of the issues considered in 1st Fleet

The liquidators argued that remuneration reports had been provided to the committee of inspection, which included the ATO representative.

The Court held that it is not an answer to the request for a liquidator to express the opinion that the information had been provided elsewhere (for example, to a committee of inspection), or for a liquidator to think the requested information will be of no utility.

The Commonwealth argued that there was every prospect that information as to the work actually carried out by the liquidators would provide information beyond that provided to the committee (which was generally directed to the approval of remuneration before the relevant work was carried out).

It was held that it was not relevant to the request that the Court would be satisfied with the information that had previously been provided to the committee or that the Commonwealth ought to be satisfied as to the adequacy of the information contained in the earlier reports. The Commonwealth was entitled to exercise its statutory right to request the information.

The Court held it was not improper to invoke the statutory right to information, even if it amounted to an alternative to preliminary discovery. The Court saw nothing inappropriate in creditors exercising the right to access instead of taking the costlier step of seeking an order for pre-action discovery from the Court.

Although the Commonwealth had previously requested information as to a range of matters, which the liquidators had provided (or largely provided), the Court observed that the Commonwealth had not previously sought information of the type being pressed in the application.

There was no suggestion that there would be any practical difficulty in the liquidators accessing the requested information, as they would have kept it in accordance with their professional obligations.

For ease of searching, the Commonwealth requested the time records in electronic form. The Court accepted this as a sensible approach, at least in production of the original time records, given the volume of entries.

Justice Black rejected a submission made by the liquidators that the Court had a ‘strong’ discretion to make or refuse orders for disclosure under section 70-90 of the IPSC. Rather, Black J considered that it was a ‘weak’ discretion, which existed for the practical purpose of:

  • dealing with futile applications, including, for example, where the liquidator produces the documents between the time of the request and the Court’s determination
  • limiting, where appropriate, the extent to which information or documents should be produced.

In relation to the composition of the committee of inspection, the Commonwealth requested documents that ‘establish’ contentions that specified persons were an eligible creditor.

The Court decided that it should not make an order requiring the liquidators to produce information to ‘establish’, or documents to ‘support’, propositions that the liquidators do not advance.
As the Commonwealth was partially successful, the liquidators were ordered to pay 50% of the Commonwealth’s costs, without recourse to the assets of the company.

Comments

The decision provides important guidance to external administrators on how to manage and respond to requests for information. It highlights that the courts will give effect to the legislature’s intention to create more transparency and accountability in external administrations.

For those preparing requests, the categories of information or documents should be identified in a straightforward and objective manner, as would ordinarily be done in identifying disclosure categories or the content of subpoenas or notices to produce. At the hearing, the Court will not order information and documents to be produced in a substantially different form to that which is sought in the request.

An external administrator responding to requests should immediately consider:

  • the content of the request
  • whether the relevant pre-requisites in Division 70 of the IPSC have been met
  • whether the exceptions listed in rule 70-15 of the Rules apply
  • the limited time period for compliance.

The decision shows that the Court will not lightly disregard requests made under the IPSC and Rules, and that an external administrator must show that they reasonably believe, in good faith, that one of the exceptions applies. Where an external administrator is satisfied that an exception does apply, they should communicate this in writing to the party making the request.

If concerned with the time limits for providing the report, information or document, an external administrator should arrange a longer period with the requesting party. The provisions relating to the sufficiency of the available property of the company and costs also need to be considered.

External administrators should treat requests with critical importance and respond proactively and positively, because there is the risk that a personal costs order may be made against them if they fail to comply.

© Cooper Grace Ward Lawyers

Cooper Grace Ward is a leading Australian law firm based in Brisbane.

This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions