Pleash (Liquidator) v Tucker and the production of documents in public examinations: whether trust assets are ‘Examinable Affairs’

In Pleash (Liquidator) v Tucker,^[1] the Federal Court makes clear that the scope of ‘examinable affairs’ in public examinations pursuant to section 597(9) of the Corporations Act 2001 (Cth) (the Act) does not extend to assets that are only potentially available to a prospective defendant. For example, this includes a beneficiary’s interest in the assets of a discretionary trust.

Background

The Appellants, as liquidators of Equititrust Limited (In Liquidation) (Receivers and Managers Appointed) (Equititrust), sought documents to be produced in response to an examination summons issued under the Act.

Section 597(9) of the Act allows the Court to direct a person to produce, at a public examination, any books in his or her possession that are relevant to matters to which the examination relates.

The First Respondent, Mr Tucker, was one of the parties ordered to provide documents under the summons regarding the examinable affairs of Equititrust. Mr Tucker had at one time been a director of Equititrust, and was also the sole director of the other remaining related-entity Respondents, save for one. Six of those Respondents were corporate trustees of discretionary trusts.

Mr Tucker made an application to set aside the orders, which was dismissed. However as part of the orders made, the primary judge ordered the production of some documents whilst excluding others.

Appeal

The liquidators sought, and were granted, leave to appeal against the orders excluding the various documents they sought from Mr Tucker. The documents included financial statements, banks statements and income tax returns in relation to superannuation funds, companies and discretionary trusts which Mr Tucker was associated with.

As sole director of the corporate trustees, Mr Tucker had powers of distribution and could direct the corporate trustees to distribute trust assets in payment of any judgment debts he might incur. In order to ascertain Mr Tucker’s ability to satisfy a future judgment debt, the liquidators contended that the documents should be available for examination due to their relevance as a potential source of funds.

Mr Tucker naturally disagreed, arguing that the excluded documents should remain outside the scope of examination because they relate to assets and liabilities in which he had no proprietary interest.

Issue for consideration by the Federal Court

The issue then became a question of whether property must be owned by a prospective defendant in order to be ‘examinable affairs’ relevant to the recovery of potential judgment debts. More specifically, the Court considered whether financial documents of discretionary trust(s) ought to be produced for the purpose of Equititrust’s liquidators investigating Mr Tucker as a prospective judgment debtor in circumstances where Mr Tucker had no proprietary interest in, but effective control, of the trust(s).

Decision

The Full Federal Court dismissed the appeal. The Court considered that there was no authority supporting the proposition that a liquidator’s legitimate task of assessing the capacity of a prospective defendant to satisfy a judgment, in itself, justifies the production of documents that may evidence the income and capital of a discretionary trust in which the defendant is a beneficiary.

The Court summarised its position as follows:

The ability of a prospective defendant to satisfy a judgment debt in the event that litigation is pursued by a liquidator is within the scope [of ‘examinable affairs’] … but we do not consider there is a proper basis to extend the scope of ‘examinable affairs’ to a consideration of what assets outside of those that comprise a prospective defendant’s property might voluntarily be directed to payment of [a judgment] debt.^[2]

The liquidators had also sought to rely on provisions of the Bankruptcy Act 1966 (Cth) which permit a trustee in bankruptcy to apply to a Court for orders relating to property controlled by a bankrupt or from which the bankrupt derives a benefit. Although the Court did not rule that avenue out, the prospect was considered too remote in time and dependant on too many contingencies to be relied upon by the liquidators at this stage.

Key takeaway

The decision in Pleash reaffirms the principle that a liquidator may conduct a public examination of prospective or actual defendants in order to assess their ability to satisfy any judgment against them. However, a liquidator may not compel the production of documents pertaining to assets not strictly owned by the defendant. The income and capital of a discretionary trust of which the defendant is a named beneficiary, in particular, are regarded as assets that do not fall within the ‘examinable affairs’ of a company in liquidation.

It is clear that the discretionary trust continues to be an effective asset protection strategy for corporations and their officeholders. Liquidators should note however that while they may continue to exercise their power to undertake public examinations to investigate the judgment-worthiness of prospective defendants, that power does not extend to assets in which the defendant has no proprietary interest.

[1] [2018] FCAFC 144.

[2] Ibid at [53].

Authored by:
Guy Edgecombe, Partner
Eunice Wells, Graduate