Powers of examination of liquidators could be assigned to litigation funders

• Published date: 09 July 2021
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Arbitration & Dispute Resolution
• Law Firm: Cooper Grace Ward
• Author: Mr Ben Williams and Claudia Levings

The Federal Court has recently confirmed that liquidators are able to assign their rights to examine people and to obtain the production of documents.

Liquidators may now find that there is greater interest from litigation funders to purchase potential claims that have not been fully investigated.

Overview

• In in the matter of 316 Group Pty Ltd, the liquidator assigned his rights to sue to a litigation funder.
• Under the assignment arrangement, the liquidator was entitled to receive 15% of the funder's recoveries.
• The funder then sought and obtained ASIC's authorisation to apply to the Court for the issuing of examination summonses and for related orders for production as an 'eligible applicant'.
• On the application to issue the summonses, the funder disclosed that the examinations were to investigate potential claims available in respect of debts that were due and owing to the company and assigned to it.
• Orders were made by the Court for the issuing of the examination summonses and for the production of documents.
• In subsequent proceedings for the recovery an assigned debt, the funder sought to rely on the documents produced under those orders.
• The respondent opposed the use of the documents on the basis that the funder was seeking to use them for a purpose other than for which they were given (known as the Harman principle).
• The Court held that, on the facts of the case, the funder did not require leave of the Court to use the documents in the debt recovery proceedings, as the predominant purpose of the orders for production was to investigate the very claim that the funder was seeking to prosecute...