The High Court of Australia recently dismissed an application brought by former Queensland Nickel Pty Ltd (QN) directors Mr Clive Palmer and Mr Ian Ferguson for a declaration that section 596A of the Corporations Act 2001 (Cth) is constitutionally invalid. The High Court’s decision in Palmer v Ayers; Ferguson v Ayres [2017] HCA 5 is a reassurance to administrators and liquidators that section 596A mandatory examinations remain a legitimate tool for investigating the affairs of a company in administration or liquidation.

Background

QN was placed in administration and subsequently put into liquidation. PPB Advisory’s Marcus Ayres, Stephen Parbery and Michael Owen were appointed Special Purpose Liquidators.

The Special Purpose Liquidators successfully applied to the Federal Court of Australia for an order under the Corporations Act summoning Mr Palmer and Mr Ferguson to attend examination of QN’s examinable affairs in accordance with section 596A.

Messrs Palmer and Ferguson commenced proceedings in the High Court seeking orders that the Special Purpose Liquidators be permanently restrained from further pursuing proceedings under the summonses on the basis that the power of the court to summons a person for examination was unconstitutional.

The Full Court of the High Court unanimously held that section 596A is not constitutionally invalid, as it does not confer non-judicial power on federal courts or courts exercising federal jurisdiction. The High Court held that an application under section 596A is a “matter” in the constitutional sense and the determination of that application engages the judicial power of the Commonwealth.

Relevant legislative provisions

Section 76(ii) of the Australian Constitution provides that “Parliament may make laws conferring original jurisdiction on the High Court in any matter … arising under any laws made by the Parliament”. Section 77 allows the Parliament to make laws defining the jurisdiction of any federal court other than the High Court with respect to the “matters” referred to in section 76. Section 1337B of the Corporations Act confers jurisdiction on the Federal and Supreme Courts.

Section 596A provides that the Court is to summon a person for examination about a corporation's examinable affairs if an eligible applicant (which includes a liquidator) applies for the summons, and the Court is satisfied that the person is or was an officer or provisional liquidator of the corporation during the relevant time period.

“Matter” in the constitutional sense

Messrs Palmer and Ferguson contended that the conferral of federal jurisdiction in respect of section 596A was invalid because there was no "matter" in the constitutional sense to engage the judicial power of the Commonwealth. They argued that the resulting examinations under the section were an inquisitorial or investigative exercise that did not concern "some immediate right, duty or liability to be established by the determination of the Court”.

The High Court majority (Justices Kiefel, Keane, Nettle and Gordon) disagreed, stating that a “matter” can “exist even though a right, duty or liability has not been, and may never be, established”.1 The majority considered that the section 596A power “looks forward, using the concept of ‘examinable affairs’ of the corporation, to the possibility that information gathered in the course of an examination … will support a claim for relief against the examinee or some other person”.2 Such a claim, being “a controversy relating to the pecuniary rights or liabilities or wrongdoing of the corporation and the examinee or some other person” capable of being determined by the court “in due course in possible further litigation by reference to legal rules, principles or standards”, is therefore a "matter" referred to in section 76 of the Constitution.3

Justice Gageler separately noted that the duty to order an examination under the section did not go beyond the court’s supervisory role in the context of external administration.4 His Honour considered that the “section 76 matter” to which the exercise of the judicial power of supervision under Pt 5.9 of the Corporations Act (of which section 596A is a part) is directed is that appropriately identified as external administration under and in accordance with the Corporations Act.5

Key takeaway

This case represents important High Court reassurance to administrators and liquidators that they can continue to resort to section 596A examinations as a valuable tool for investigating the affairs of companies in administration or liquidation.