In Saraceni v ASIC [2013] FCAFC 42 the Full Court of the Federal Court of Australia confirmed that it is not necessary for ASIC to provide potential examinees with an opportunity to be heard prior to authorising receivers to conduct examinations under s596A of the Corporations Act.

FACTS

Mr Saraceni is a former director of a group of companies that was placed into receivership in 2011.  The receivers of the group sought ASIC approval to be authorised as “eligible applicants” so that they could conduct examinations into persons including Mr Saraceni under s596A of theCorporations Act.  Unlike liquidators and voluntary administrators, receivers are not authorised to conduct examinations without ASIC authorisation.

In July 2011, ASIC authorised the receivers to be eligible applicants for the purpose of s596A of the Corporations Act.  Mr Saraceni challenged that decision on the basis that he had been denied procedural fairness under the Administrative Decisions (Judicial Review) Act 1977 (Cth) in not being afforded the opportunity to be heard on the question of whether the receivers should have been authorised as eligible applicants.

THE DECISION

The Full Court rejected that ASIC had an obligation to afford Mr Saraceni procedural fairness and to give him an opportunity to be heard when determining whether to authorise the receivers as eligible applicants.  The process of issuing an examination summons is a two-stage exercise.  ASIC’s power to authorise a person as an eligible applicant is a preliminary step and does not affect the rights of a potential examinee as it represents “merely the conferral of standing to make an application.” 

The Court found that:

  • In determining whether a duty of procedural fairness is owed, the overriding question is whether the exercise of the investigative power carries with it a capacity to destroy or prejudice the rights or interests of the person affected by the exercise of the power.  Authorisation of the receivers as eligible applicants does not directly affect the rights of any potential examinees.  It merely provides authorisation for the receivers to apply to Court to conduct an examination.
  • A receiver may seek authorisation to examine a significant number of people.  It would be impractical for ASIC to give notice to all persons who might be affected by the authorisation of a person as an eligible applicant.
  • An application by a person seeking authorisation as an eligible applicant only requires consideration of the relationship between the applicant and the company. It is difficult to see how a potential examinee could provide useful information that would inform those matters.

COMMENT

The examination process is important and a useful tool in all forms of external administration.  Receivers can take comfort from this decision as it means that potential examinees will not be put on notice that an examination is about to occur. 

The decision also provides certainty to receivers that their confirmation as eligible applicants will not be constrained by a duty of procedural fairness being owed to potential examinees.  The decision minimises the costs of receivers in examining the affairs of a company and makes the process of investigating a company more efficient.