Walton v ACN 004 410 833 Ltd (formerly Arrium Ltd) ((in Liquidation))

• Jurisdiction: Australia Federal only
• Judge: Kiefel CJ,Keane J
• Judgment Date: 16 February 2022
• Neutral Citation: [2022] HCA 3
• Year: 2022
• Docket Number: S20/2021
• Court: High Court

Michael Thomas Walton & Anor

Appellants

and

ACN 004 410 833 Limited (Formerly Arrium Limited) (In Liquidation) & Ors

Respondents

[2022] HCA 3

Kiefel CJ, Gageler, Keane, Edelman and Steward JJ

S20/2021

HIGH COURT OF AUSTRALIA

Companies — Winding up — Mandatory examination of persons about examinable affairs of corporation — Application to set aside summons for examination — Purposes for which an officer or provisional liquidator may be summoned for examination about corporation's examinable affairs pursuant to s 596A of Corporations Act 2001 (Cth) — Where appellants were shareholders of corporation in liquidation — Where appellants authorised by Australian Securities and Investments Commission to make application pursuant to s 596A of Corporations Act 2001 (Cth) — Where appellants applied for summons for purpose of investigating potential personal claims in capacity as shareholders against former directors and auditors of corporation — Where Registrar issued summons to former director to attend court for examination — Whether appellants' purpose foreign to purpose of s 596A of Corporations Act 2001 (Cth) — Whether examination an abuse of process.

Words and phrases — “abuse of process”, “benefit of the company, its creditors, or its contributories”, “corporation in external administration”, “eligible applicant”, “enforcement of the law”, “examinable affairs”, “predominant purpose”, “public administration and compliance”, “public interest”, “purpose of the examination”, “scope and purpose of a statutory process”, “summons for examination”, “winding up”.

Corporations Act 2001 (Cth), s 596A.

Representation

N C Hutley SC and J Shepard for the appellants (instructed by Banton Group)

M A Izzo SC with T E O'Brien for the first respondent (instructed by Arnold Bloch Leibler)

J K Kirk SC with A B Emmerson for the second respondent (instructed by Ashurst)

Submitting appearance for the third respondent

ORDER

• 1. Appeal allowed.

• 2. Set aside orders 3, 4 and 5 made by the Court of Appeal of the Supreme Court of New South Wales on 30 July 2020 and, in their place, order that the appeal be dismissed with costs.

• 3. The first and second respondents pay the appellants' costs of and incidental to the appeal, including the application for special leave to appeal.

1 Kiefel CJ and Keane J. The first respondent (“Arrium”) was a producer of iron ore and steel and was listed on the Australian Stock Exchange. Between September and October 2014 it raised $754 million in capital. It provided an Information Memorandum in connection with the capital raising and shortly prior to that action it published its financial results for the year ended 30 June 2014. In its half-yearly results published in February 2015 the company acknowledged a reduction in the value of its mining operations of $1,335 million. Earlier, in January 2015, it had announced that it would be suspending or closing one of its principal mining operations. The announcement followed a decline in the export price of iron ore. The company was placed into administration in April 2016 and in June 2019 liquidators were appointed.

2 In April 2018 the solicitors of the appellants, who were shareholders of Arrium, wrote to the Australian Securities and Investments Commission (“ASIC”) requesting that the appellants be given the status of an “eligible applicant”, a term defined by the Corporations Act 2001 (Cth) 1 to include a person authorised in writing by ASIC to make an application under Pt 5.9, Div 1. Section 596A, in Pt 5.9, Div 1, relevantly provides that such a person may apply to the Court for a summons to be directed to a person who is an officer of a corporation or was an officer of a corporation in a specified period relating to the administration or winding up of the corporation, to be examined about the corporation's “examinable affairs” 2. ASIC provided that authorisation.

3 The appellants applied to the Supreme Court of New South Wales for orders that the third respondent, a former director of Arrium, appear for examination and produce documents. Orders were also sought for the second respondent (the auditor) and the bank who advised on the capital raising to produce certain documents. A Registrar in Equity made the orders. Arrium sought to have the orders stayed or set aside. The second respondent and the third respondent took part in those proceedings and sought similar orders. Black J ordered that the examination summons be stayed on condition that Arrium file an application for leave to appeal within a specific period 3. Arrium did so. The Court of Appeal (Bathurst CJ, Bell P and Leeming JA) granted leave to appeal, allowed the appeal,

discharged the orders for examination made by the Registrar and made other orders 4

4 In the letter to ASIC, the appellants' solicitors gave as the reason their clients should be given the status of eligible applicants their clients' concern that the results for the financial year ended 30 June 2014 and the information given in respect of the capital raising did “not adequately or fairly” portray the “true state of Arrium's business”. They advised that they would seek an order for examination in order to determine whether any claims might be brought against the company, its directors or its auditor. The letter implied that a derivative action on behalf of the company was possible. In subsequent communications they said that the examinations would be made for the benefit of shareholders and creditors of the company.

5 At the hearing before Black J, the appellants abandoned any suggestion that their purpose was to investigate the possibility of a derivative action. They accepted that they were not claiming against the company as creditors, and that any recovery by them against third parties would not improve the position of the company's other creditors. What was proposed was a class action for loss and damage suffered by investors who bought securities in the company after its 2014 financial year results and the 2014 capital raising, based on allegations of misrepresentations about its financial position at the relevant times.

6 Black J considered that the information provided by the appellants to ASIC “does tend to indicate that their predominant purpose in seeking the issue of the examination summons was to investigate, and pursue, a personal claim in their capacity as shareholders against directors of Arrium or against its auditors” 5. But his Honour was not satisfied that the application amounted to an abuse of process 6.

7 The Court of Appeal identified the critical question to be whether the purpose of the examination is foreign to the purpose for which the statutory power is conferred 7 and concluded that it was. 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 irrespective of whether they held their shares when administrators were appointed, not for a purpose which conferred a demonstrable benefit on the company or its creditors or all of its contributories 8

8 On this appeal the appellants argue that the system of discovery provided by s 596A does not require a benefit to accrue to Arrium, its contributories or its creditors. They contend that the statutory purpose is broader. It is to enable evidence and information to be obtained to support the bringing of proceedings against officers of the company and others in relation to the examinable affairs of the company.

Statutory provisions

9 Section 596A appears in Pt 5.9 of Ch 5 of the Corporations Act. Chapter 5 is headed “External administration”. The Parts which precede Pt 5.9 deal with different types of external administration of a company and certain aspects of it. For example, Pt 5.1 deals with “Arrangements and reconstructions”; Pt 5.2 with “Receivers, and other controllers, of property of corporations”; Pt 5.3A with “Administration of a company's affairs with a view to executing a deed of company arrangement”; Pt 5.4 with “Winding up in insolvency”; Pt 5.5 with “Voluntary winding up”; Pt 5.6 with “Winding up generally”; Pt 5.7B with “Recovering property or compensation for the benefit of creditors of [an] insolvent company”; and Pt 5.8 with “Offences”.

10 Part 5.9 is headed “Miscellaneous”. Division 1, in which s 596A and other provisions referred to below are located, is headed “Examining a person about a corporation”. Section 596A provides:

“ Mandatory examination

The Court is to summon a person for examination about a corporation's examinable affairs if:

• (a) an eligible applicant applies for the summons; and

• (b) the Court is satisfied that the person is an officer or provisional liquidator of the corporation or was such an officer or provisional liquidator during or after the 2 years ending:

  • (i) if the corporation is under administration – on the section 513C day[ 9] in relation to the administration; or

  • (ii) if the corporation has executed a deed of company arrangement that has not yet terminated – on the section 513C day in relation to the administration that ended when the deed was executed; or

  • (iii) if the corporation is being, or has been, wound up – when the winding up began; or

  • (iv) otherwise – when the application is made.”

11 An “eligible applicant”, in relation to a corporation, is defined by s 9 to mean:

• “(a) ASIC; or

• (b) a liquidator or provisional liquidator of the corporation; or

• (c) an administrator of the corporation; or

• (d) an administrator of a deed of company arrangement executed by the corporation; or

• (e) a person authorised in writing by ASIC to make:

  • (i) applications under the Division of Part 5.9 in which the expression occurs; or

  • (ii) such an application in relation to the corporation.”

12 Section 9 defines “examinable affairs”, in relation to a corporation, to mean:

• ...