Home Insights TGIF 10 September 2021 – Examining an examiner’s purpose: public examinations and subjective motivation

TGIF 10 September 2021 – Examining an examiner’s purpose: public examinations and subjective motivation

This week’s TGIF considers the decision of Middleton J last week in Shangri-La Construction Pty Ltd v Hyatt, in the matter of GVE Hampton Pty Ltd (in liquidation) (No 2) [2021] FCA 1048, refusing to stay examinations despite the liquidators having brought recovery proceedings without requiring examinations. The examinees contended that the examiner had ceased to be a creditor and that in circumstances where they were already being pursued by the liquidators, the eligible applicant’s examination should not be permitted to proceed. The Court found that the examinations could still have a legitimate ‘purpose’, even if there was some speculation about the examiner’s ‘motive’.

Key Takeaways

  • The contention that an authorised applicant is no longer a creditor will not, without more, assist the examinee in avoiding the examination summonses.

  • An examiner may proceed with an examination even if there is some question as to their claims – eligibility turns on designation as an ‘eligible applicant’ by ASIC.

  • It is also possible for a third party ‘eligible applicant’ to continue examinations even if the liquidators already have recovery proceedings underway and have not required examinations.

  • Where the examination is for a legitimate purpose, the motivation of the creditor is not an independent ground on which to conclude there is an abuse of process.

  • The High Court may provide further guidance in this area soon. ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) v Michael Thomas Walton [2020] NSWCA 157 is on appeal and due to be heard next month.


The case is the latest of several relating to the liquidation of GVE Hampton Pty Ltd (in liq) (the Company). Shangri-La Construction Pty Ltd (Shangri-La) was awarded about $200,000 against the Company in respect of a development in Small Street, Hampton, Victoria. The Company went into creditors’ voluntary liquidation. The liquidators admitted the judgment debt in full.

The liquidator then engaged solicitors to bring over $7 million in recovery proceedings and engaged with Shangri-La as a prospective funder.

Shangri-La then obtained ‘eligible applicant’ status from ASIC and asked the liquidator to hold off on recovery proceedings until after examinations, in case the examinees would argue that Shangri-La was ‘fishing for evidence’.

Shangri-La then obtained examinations summonses from the Federal Court under sections 596A and 596B of the Corporations Act to the director, the director’s mother, and two former directors (Examinees).  

The Examinees unsuccessfully applied to discharge the summonses: [2020] FCA 1577 (Beach J).

There was then some jostling as to who would run the $7 million recovery proceedings. Shangri-La unsuccessfully sought to appoint its own special purpose liquidator to do so: [2021] VSC 161 (Connock J).

Around the same time:

  • the liquidators commenced the recovery proceedings without requiring the examinations; and

  • one of the Examinees (the director’s mother) made payments to Shangri-La representing the judgment debt, consistent with Shangri-La’s proof of debt plus accrued interest. Shangri-La did not return the money but argued before Connock J that the payments were an abuse of process to try and avoid examinations.

The Examinees’ application

The Examinees then applied for a permanent stay of the examinations and a declaration that Shangri-La was no longer a creditor.

Middleton J was therefore faced with deciding whether to allow the examinations to remain on foot despite these two events since Beach J had upheld the summonses:

  • first, the payments made to Shangri-La, with limited evidence as to Shangri-La’s motive in continuing with examinations; and

  • second, the liquidators’ commencement of recovery proceedings without requiring examination proceedings.

The Examinees’ main argument was that Shangri-La had no legitimate purpose in continuing with the examinations but that it could be inferred Shangri-La was motivated to use the examinations to cause expense and inconvenience.

The Decision

Middleton J allowed the examinations to continue.

Key aspects to the decision are outlined below.

Does not matter if examinee is no longer a creditor

As preliminary matter, his Honour decided not to make a declaration that Shangri-La was no longer a creditor, on the basis that this would have no utility.

His Honour also noted that there was also no question of standing to be considered, given that ASIC had granted ‘eligible applicant’ status.

Heavy evidentiary onus

The case came down to finding that the Examinees had not met the heavy evidentiary onus of proving that the examinations were an abuse of process.

This primarily turned on whether the predominant purpose of the examinations was improper. His Honour accepted that the Court had inherent jurisdiction to stay an examination for abuse of process where an examiner seeks to achieve some purpose foreign to that which the legislature intended.

Legitimate purpose different from examiner’s ‘motive’

His Honour drew a distinction between ‘motive’ and ‘purpose’.  His Honour accepted that the matters raised by the Examinees may go to indicate Shangri-La’s ‘motivation’ in continuing examinations but found that there was still a ‘remaining purpose’ of the examinations in protecting the interests of ‘all creditors’. Ultimately, his Honour was persuaded that Shangri-La’s ‘abiding or influential purpose’ remained legitimate ‘even though it may no longer be a creditor’.

This finding echoed in part Beach J’s conclusion that Shangri-La’s ‘motivating, abiding or most influential purpose’ had been legitimate. At the time of Beach J’s decision, recovery of the judgment debt was still a ‘motivating’ factor.

Beach J had observed that Shangri-La would conduct examinations in order to get the judgment debt paid – but that this was not foreign to the ‘purpose for which the power was conferred’ because it could also confer a benefit to the Company or its creditors.

Middleton J did not have to speculate as to whether there was now a motive foreign to that legislative purpose: “We can speculate as to motive, but this is to be distinguished from purpose.”

Liquidators’ concurrent proceedings no reason to stay

The concurrent liquidators’ proceedings were not treated as giving rise to any concern about abuse of process.

His Honour observed that undoubtedly they would cover the same matters sought to be enquired into by Shangri-La.

The liquidators had not supported the examinations. In fact, they had previously successfully resisted Shangri-La’s attempt before Connock J to appoint a special purpose liquidator to run the $7 million recovery proceedings.

His Honour did not see these proceedings as a reason to stay the examination. His Honour observed that there may be some utility in the examinations continuing, in case the liquidators’ proceedings do not proceed to hearing or judgment.

No discretion for Court to tailor relief to the case

His Honour considered temporarily staying examinations (with conditions relating to Shangri-La’s position and progress of the liquidators’ proceedings) but decided that there was no judicial discretion to do so.

Falls to Registrar to limit the examination’s scope if needed

His Honour concluded with a reminder that the Registrar conducting the examinations has power to limit the scope of the examinations if necessary, quoting from Beach J’s decision.

Beach J had observed that it does not matter if the examinations’ scope is not confined by the basis for obtaining ‘eligible applicant’ status from ASIC. It is for the Registrar to allow or disallow questioning if it is solely collateral to the proper purposes of the examination.


The case was decided against the backdrop of significant appellate-level developments relating to the purposes for conducting public examinations. It also takes a particularly robust approach to permitting examinations to continue, despite any doubts as to changes in the examiner’s ‘motive’.

On one view, this robust approach is just the practical result of the process by which creditors can apply to conduct public examinations. ASIC’s decision to grant ‘eligible applicant’ status is an administrative decision, with limited rights of review. Once through that gate, the application to the Court for an examination summons gives little discretion to a Registrar – depending on whether a mandatory or discretionary summons is sought under sections 596A or 596B. And once the summons is issued, it can be difficult for an examinee to get it set aside or obtain a stay, as this case demonstrates.

As to setting parameters as to the permissible scope of examination, in practice everything is then left to the Registrar hearing the examination to limit lines of questioning, based on any objections from the examinees’ lawyers. This makes it easier to find that an examination’s ‘purpose’ will be consistent with the legislature’s intention because, after all, its scope will ultimately be policed by a Registrar so it should not matter what ‘motivates’ the party conducting and/or funding them.

Other courts have taken a different approach in scrutinising more carefully an examiner’s motives. Last year in New South Wales, Rees J set aside an examination summons for abuse of process. Her Honour picked up on comments made by Young CJ in Eq that, although there is a ‘heavy’ onus, where the person applying for an examination summons is not a court-appointed liquidator, ‘the Court looks more deeply into the motives and purpose of the examination.[1]

It is possible that the High Court will soon provide welcome guidance where to draw the line. The Court of Appeal’s decision in Arrium is currently on appeal to the High Court and due to be heard next month.[2]

One conventional view canvassed at the special leave hearing is that the purpose should be about aiding the external administration of the company.[3] Examinations by a creditor designated as an eligible applicant can be useful because the liquidators may not have funding to investigate claims themselves. If recovery action is taken this can increase the pool available to unsecured creditors or (if the examiner is a secured creditor) the examinations may result in some of the secured debt being paid down. There can also be a general benefit in exposing any misconduct.

Regardless of the result in this case, which turns heavily on its own facts (or lack thereof), examinations by authorised applicants other than external administrators will continue to be an area of controversy.

[1] Re Southland Coal Pty Limited (2005) 189 [2005] NSWSC 259 at [16]-[17] per Young CJ in Eq; Newheadspace (in liq) [2020] NSWSC 173 (Rees J).

[2] ACN 004 410 833 Ltd (formerly Arrium Limited) (in liq) v Michael Thomas Walton [2020] NSWCA 157.

[3] See Walton & Anor v ACN 004 410 833 Limited (formerly Arrium Limited) (in liquidation) & Ors [2021] HCATrans 18 (11 February 2021).


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