.READ the recent article by Professor Ian Ramsay & Associate Professor Rosemary Langford "Removal of Directors of Public Companies by Shareholders:When do companies contract out of the Corporations Act?" (2019) 37 Company and Securities Law Journal 54-57. What are the difficulties in removing a director which the professors are discussing?What are the work arrangements of directors eg do they have a contract or is their term in office governed by the corporate constitution?How is the remuneration of directors determined?

article:

(2016) 34 ACLC 16-035

Court citation: [2016] FCA 1048

LawCite

Federal Court of Australia

Judgment handed down 29 August 2016

Corporations External administration Examining a person about a corporation Applications to set aside examination summonses Whether Court has power to order examination of a person in relation to a company in voluntary liquidation Corporations Act 2001, s491,596A,596B.

At a second meeting of creditors ofQueenslandNickelPtyLtd (QNI), it was resolved that the company be wound up voluntarily pursuant to s 491 of theCorporations Act 2001. The administrators of the company were appointed as liquidators (General Purpose Liquidators). Following a further application by creditors of the company, the Federal Court appointed special purpose liquidators pursuant to s 472(1) and 511 of the Corporations Act, authorising them to conduct examinations and perform various other tasks in the course of investigating the specific matters set out in the orders.

The special purpose liquidators obtained summonses to examine a former chief financial officer and two directors (company officers) pursuant to s 596A and 596B of the Corporations Act. Those summonses followed an earlier successful application by the General Purpose Liquidators to examine the company officers, although those earlier summonses had been adjourned and had not been served on the company officers.

The company officers sought to have the examination summonses set aside. It was submitted that (i) the scope of the documents to be produced under the summonses and (ii) the fact that examination summonses had been obtained earlier by the General Purpose Liquidators meant that compliance with the examination summonses obtained by the special purpose liquidators would be oppressive or an abuse of process.

It was further submitted that there was no constitutional basis, in the context of a voluntary winding up, for the conferral of examination powers under s 596A and 596B. The Commonwealth could only confer on federal courts powers that could be characterised as "judicial" or as incidental to the exercise of judicial power. A compulsory examination under s 596A or s 596B did not involve the resolution of any dispute or the determination of any rights. Although it was usually considered as incidental to the Court's power to wind up a company, it was submitted that this principle did not apply in the case of a voluntary liquidation.

Held:applications dismissed in part.

1. It was well established that the Commonwealth could not confer non-judicial power upon the Federal Court except where the power was incidental to an exercise of judicial power:RvKirby; Ex parte Boilermakers' Society of Australia(1956) 94 CLR 254.

2. The fact that QNI was in voluntary liquidation did not affect the constitutional validity of the Court's power to compel the company's officers to submit to an examination following an application by the special purpose liquidators pursuant to s 596A and 596B.

3. It was clear from the historical antecedents to the current statutory framework that the judicial power to order a compulsory examination was conferred in relation to both Court-ordered winding up proceedings and voluntary liquidations. In either case, the power engaged an application to the Court for an appropriate order and a subsequent judicial supervision of the examination process according to law. That historical understanding of the Court's power was present in Pt 5.9 of the Corporations Act.

[555]4. There was no basis to conclude that the examination summonses obtained by the special purpose liquidators were oppressive by reason of the earlier summonses obtained by the General Purpose Liquidators. The earlier summonses had been adjourned, with no new date fixed for the examination. Nor was there any evidence that the earlier examination summonses had been served upon the company officers.

5. On the production of documents issue, the applications should be adjourned while the parties continued their correspondence on the scope of the documents to be produced under the examination summonses. However, the resolution of that issue was not a condition for allowing the examination of the company officers to proceed.

[Headnote by the CCH CORPORATE LAW EDITORS]

T Sullivan QC and C Muir (instructed by King and Wood Mallesons) for the special purpose liquidators.

N Ferrett (instructed by Kilmurray Legal) for the Ferguson and Wolfe.

Palmer appeared in person.

Before: Greenwood J.