The Burning Book: Liquidator Search & Seizure Warranted

In Carrello (Liquidator), in the matter of Drilling Australia Pty Ltd (in liquidation) [2019] FCA 1563 the Federal Court of Australia was required to consider whether to issue a warrant for search and seizure of company records under section 530C of the Corporations Act.1

Legal principles

Pursuant to section 530C of the Act, a liquidator may apply to the Court for a warrant authorising a specified person to:

  • search for and seize the property or books of the company; and
  • deliver, as specified in the warrant, property or books seized under it.

To obtain such an order, the Court must be satisfied that a person has concealed or removed property of a company and thereby prevented or delayed the liquidator, or has concealed, destroyed or removed the books of the company or is about to do so.

Background

On 7 June 2018, the Supreme Court of Western Australia made orders that Drilling Australia Pty Ltd (Company) was to be placed in liquidation and a liquidator was appointed.

On the same day, the liquidator’s staff attended the Company’s premises, following a tip received by the liquidator that the books and records of the Company were being burned at the Company’s premises. 

The result of the inspection by the liquidator’s staff was that the office had been cleaned out and the computers had been wiped.

On 22 June 2018, the liquidator issued a director of the Company (Director) with a statutory notice under section 530A of the Act, requesting that the director deliver up assets, books and information in relation to the Company (Notice). 

The Director did not comply with the Notice.

On 1 November 2018, the Director was sentenced to a term of immediate imprisonment by the District Court of Western Australia in an unrelated matter.

Prior to being sentenced, the Director sent an email setting out detailed instructions on how to deal with property of the Company located in storage containers in Perth and on known premises in the Northern Territory in the event that the Director was sentenced to imprisonment (Email).

On 30 August 2018, the liquidator filed an interlocutory process seeking (among other things) an order that the Court issue a warrant authorising the liquidator to search and seize the property, books and records of the Company referred to in the Email.

Decision

The liquidator submitted that the company property referred to in the Email was in the possession of the Director by reason of the fact that the Director left detailed instructions regarding them directed at the recipient of the Email and so is able to exercise control.

Her Honour Justice Banks-Smith agreed with that submission, and held that (among other things):

  • the Director concealed or removed property of the Company with the result that the taking of the property into the custody of the liquidator had been prevented or delayed;
  • the property of the Company was in the Director’s possession on the basis that the Email disclosed that the Director retained control through third parties; and accordingly
  • a warrant be issued which is in substantially the same from previously approved by the Court, which includes a term that the staff of the Australian Securities Commission and the Australian Federal Police are to provide such assistance as is reasonably necessary.

Lavan comment

Practitioners should be mindful that because of the punitive nature of this power and the Court’s position that a section 530C warrant is a remedy of last resort, it will only be if the liquidator has taken all reasonable precautions to acquire the property of the company by conventional means that the Court may agree to authorising the issue of a warrant under section 530C.

While it is preferable to obtain the co-operation of directors and office holders in undertaking investigations into the affairs of an insolvent company, there is utility in knowing, and being prepared to exercise (if required and if funding permits) the rights and tools available to liquidators under Part 5.6 of the Act.