Home Insights TGIF 7 August 2020 – Public examination for private gain: NSW Court of Appeal clarifies Court’s power to make examination orders

TGIF 7 August 2020 – Public examination for private gain: NSW Court of Appeal clarifies Court’s power to make examination orders

This week’s TGIF considers the recent decision of the NSW Court of Appeal in the Arrium liquidation, where the Court set aside examination orders sought for the purpose of a possible shareholder class action.

Key takeaways

  • The Court of Appeal has clarified that examination orders may only be sought for a purpose that benefits the company, its contributors and creditors.

  • Examinations for a private purpose, such as the purpose of investigating a possible shareholder class action, will be set aside as an abuse of process.

  • The Court will examine the subjective purpose of the applicant, including by scrutinising material submitted to ASIC.


In October 2014, Arrium, a steel and mining company, completed a fully underwritten $754 million capital raising, stating that the proceeds would go to paying the company’s debts.

However, in January 2015, the firm suspended its Southern Iron mining operation and a month later it announced an impairment of $1,335 million in the value of its mining operations.  Administrators were appointed in April 2016 and in June 2019 the administrators were appointed as liquidators.

In April 2018, two shareholders of Arrium sought ASIC approval to take part in examinations as “eligible applicants”.  ASIC subsequently gave that approval.

In May 2019, the shareholders sought to examine a former director of Arrium over the October 2014 capital raising and the firm’s finances in 2014 and 2015.  The shareholders also issued orders for production to Arrium’s former auditor and adviser.  

The stated purpose of the shareholders’ participation in the examinations was to determine whether any claims should be brought against Arrium, its directors or its auditor.  The details of the proposed claims had been made available on a website for participants in a potential class action.  The shareholders were to be lead plaintiffs in the class action.  

Primary judge’s decision

At first instance, Arrium applied to have the examination and production orders stayed or set aside.

Justice Black allowed the examination and orders for production, dismissing Arrium’s application.  His Honour said that no abuse of process arose because the respondents wished to examine on matters about which the liquidators could properly have sought examination orders.

His Honour further considered that, while it appeared that the predominant purpose of the examination was to investigate and pursue a personal claim against directors of Arrium and its auditors, the examination would also likely advance the interests of Arrium and its creditors.


The NSW Court of Appeal unanimously overturned Black J’s ruling.

The Court said that an examination will be an abuse of process if its predominant purpose was not for the purpose of benefitting the company, its contributors and creditors.

In this case, the Court considered that the examination was sought for a private purpose, for the benefit of a limited group of persons who bought shares in Arrium at a particular time, regardless of whether they held their shares at the time of the appointment of the administrators.  

The Court noted that it is the subjective purpose of the applicant that is relevant.  The Court had regard to the shareholders’ application to ASIC for approval as eligible applicants entitled to take part in the examinations.  This material disclosed the shareholders’ predominant purpose of investigating and pursuing a claim in their capacity as shareholders.

Accordingly, the Court found that the examination was for a purpose foreign to the purpose for which the examination power is conferred. The examination and orders for production were therefore set aside as an abuse of process.  


This decision clarifies the scope of the Court’s power to make examination orders.  Such orders can only be sought for the purpose of benefitting the company, its contributors and creditors.

For entities seeking to take part in an examination as an “eligible applicant”, the decision is a reminder that the Court will scrutinise the material submitted to ASIC in support of that application.   Indeed, the Court hinted that an examination summons may be set aside where an eligible applicant attempts to use the summons in a way that differs from the basis put forward to ASIC.


Restructuring and Insolvency

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