Private Examination Granted for Director Charged with Federal Crimes

By Alicia Hill, Principal and Maxim Oppy, Law Clerk

In Sprowles (Liquidator), in the matter of CWCN Pty Ltd (in liq) [2021] FCA 159, the Federal Court of Australia ordered a private and confidential examination of a director who had been charged with serious federal crimes. The case provides guidance about when ongoing criminal proceedings will give rise to ‘special circumstances’ justifying a private examination by a liquidator.

Background

Lindsay Kirschberg, director of Adelphi Finance Pty Ltd (Adelphi), was arrested by the Australian Federal Police on 21 July 2020 in connection with a major crime syndicate led by businessman George Alex which is alleged to have defrauded the Australian Tax Office of over $17 million. Mr Kirschberg is alleged to have been a shadow controller of payroll and labour companies, including Adelphi, which laundered money, he has been charged with conspiracy to defraud the Commonwealth and conspiracy to deal with the proceeds of crime and is awaiting trial.

Christian Sprowles is the liquidator of CWCN Pty Ltd (CWCN), a company that had significant dealings with Adelphi. He served a summons on Mr Kirschberg in late 2020 seeking examination regarding Adelphi’s relationship with CWCN, the circumstances giving rise to debt’s owed by CWCN to Adelphi, its relationship with other relevant entities and security Adelphi may hold over CWCN’s property. 

Mr Kirschberg applied to the Court to have the examination held in private and for the transcript to be confidential. Mr Sprowles neither consented nor opposed the relief sought.

 

Mr Kirschberg’s legal argument

Section 597(4) of the Corporations Act 2004 (Cth) (Act) provides that examinations about a corporation’s affairs are to be public unless there are ‘special circumstances’ rendering it desirable to hold a private examination.

Mr Kirschberg argued that ‘special circumstances’ arose in this case because of the ongoing criminal proceedings. He claimed that a public examination could prejudice his right to a fair trial or his ability to mount a defence to the allegations against him. This risk arose because the examination would focus heavily on Adelphi’s operations, in particular, the loan arrangements entered with companies like CWCN.

There would be a significant overlap with the subject matter of the criminal proceedings because Adelphi’s operations form a major part of the criminal case against Mr Kirschberg; Australian federal Police allege that Adelphi was used as a vehicle to disguise the proceeds of crime as loan payments. Further, pursuant to section 597(12) of the Act, Mr Kirschberg cannot refuse to answer questions on the basis that he might incriminate himself. Consequently, if the examination was public, facts relating to potential defences to Mr Kirschberg’s criminal charges might be made public, and therefore available to the prosecution.

 

Judgement and orders

Justice Rowley found that ‘special circumstances’ were established. His Honour agreed with all of Mr Kirschberg’s submissions. His Honour noted that, in general, the potential prejudice to an accused’s defence in a pending criminal prosecution was sufficient to create ‘special circumstances’.

Justice Rowley ordered that:

  • Mr Kirschberg’s examination be conducted in private;
  • the transcript would be kept confidential, with no order made for a written record of the examination to be authenticated.

This means that individual creditors will be unable to access the transcripts until criminal proceedings are concluded. However, Mr Sprowles, as the liquidator, will have access to the information which may be derived from the evidence.

 

Conclusion

This case illustrates while special circumstances requiring a private examination are unlikely to arise often, it is important for liquidators to be aware of the situations in which they might, in particular where the examinee is subject to criminal proceedings and be prepared to seek appropriate orders to enable the examination to proceed.   

If you have any queries, please contact Alicia Hill on (03) 8540 0292 or alicia.hill@mst.com.au.