Commonwealth requests under the IPS - what gives?

In the judgment given in In the matter of 1st Fleet Pty Ltd (in liquidation) [2019] NSWSC 6, Justice Black of the NSW Supreme Court considered the scope of information requests pursuant to the Insolvency Practice Schedule (Corporations) (IPS) and the Court’s ability to make orders in respect of non-compliance with the IPS.  The requests in question were made to the liquidators (Liquidators) of 1st Fleet Pty Ltd and a number of related companies (Companies) by the Commonwealth of Australia (Commonwealth).

Background

The Commonwealth’s interest arose from the fact that it had advanced over $9M to employees under the General Employee Entitlements and Redundancy scheme and the Fair Entitlements Guarantee scheme.  The requests made by the Commonwealth related to concerns about the quantum of remuneration paid to the Liquidators of over $4.4M.

The Commonwealth requested that the Liquidators provide:

• information as to the constitution of the committee of inspection of the Companies (the COI Request); and
• information as to remuneration of the Liquidators (the Remuneration Request).

Following failure by the Liquidators to comply with the requests, the Commonwealth applied to the Court under:

• s 70-90(1) of the IPS for orders in respect of the material requested; and
• s 70-15 of the IPS for orders in respect of the liquidations generally.

It should also be noted that the Commonwealth had already requested and been provided with a substantial volume of information and documents by the Liquidators.

COI Request

The Commonwealth made the COI Request under section 70-45 of the IPS, which provides creditors with the ability to request information in respect of an external administration which must then be provided by the administrator unless the information sought is not relevant to the administration, providing the information would result in a breach of duty by the administrator, and it is otherwise not reasonable for the administrator to provide the requested information or the request falls within one of the defined exemptions as set out in the Insolvency Practice Rules (Corporations) (IPRs).¹

However, the COI Request was based on a number of contentions made by the Commonwealth in respect of the eligibility of certain members appointed to the COI, and the COI Request then required the Liquidators to produce information in respect of those contentions.

The Court ultimately declined to order that the Liquidators produce the information sought by the COI Request, and made the following key findings:

• first, that section 70-15 of the IPRs provides a complete statement of the circumstances in which it is not reasonable for an external administrator to comply with a request for information under section 70-45 of the IPS;
• secondly, there was no evidence to suggest that there was further information responding to the COI Request that had not already been provided;
• thirdly, that the COI Request was not a straightforward request for information and documents but required the Liquidators to find evidence that proved or disproved the Commonwealth’s contentions; and
• fourthly, that the court application sought categories of documents not actually included in the original COI Request.

Remuneration Request

The Commonwealth made the Remuneration Request pursuant to both section 70-45 (creditor request) and section 70-55 of the IPS.  Section 70-55 applies in circumstances where a claim for assistance from the Commonwealth exists (or is anticipated) in respect of employment entitlements, in which case the Commonwealth may request specified information and the external administrator must comply with the request.

In summary, the Commonwealth sought production of the Liquidators’ time entries to show the entry of time and narrations of work undertaken by them and their staff in the liquidations.  The Commonwealth was content for the time entries to be redacted to mask any information that was properly confidential or subject to legal professional privilege.

The Liquidators opposed the request on a number of grounds including that sufficient information had already been provided to determine the reasonableness of their remuneration, they had offered further summary reports of their time entries, and that pressing the request was vexatious to the extent that substantial information had already been provided to the Commonwealth and the Commonwealth had not established that there was a demonstrated need to inquire into the Liquidators’ remuneration.

Justice Black strongly rejected the arguments put forward by the Liquidators and ordered that the Liquidators provide the requested time entry information.  Justice Black expressly found that sections 70-45 and 70-55 of the IPS create a right for a creditor to access an external administrator’s time entry information, and that subject to the exception where a request is unreasonable under section 70-45 this information should be provided to the requesting creditor.

Lavan comment

This is an important decision regarding the new rights given to creditors to request information from external administrators under the IPS and IPRs.

The key takeaways are:

• section 70-15 of the IPRs provides a complete statement of the circumstances in which it is not reasonable for an external administrator to comply with a request for information under section 70-45 of the IPS;
• section 70-45 of the IPS creates an express right for a creditor to request time entry data from an external administrator, subject only to the exceptions in section 70-45 itself as well as the circumstances outlined in section 70-15 of the IPRs; and
• section 70-55 of the IPS gives the Commonwealth in the relevant circumstances even broader powers to request information from an external administrator and that section is not subject to the same exceptions or limitations as the general creditor power under section 70-45 of the IPS.

It is important for practitioners to be aware of the implications of this decision in relation to requests for information and documents in respect of an external administration.