In a recent case[1] the Supreme Court of Victoria considered a Deed Administrator’s requirement to provide documents to a creditor[2].
The documents in question
Pacreef Investments Pty Ltd (Pacreef) wrote to the administrators and sought the production of a number of documents (in the context of their application to remove the administrators). The administrators refused to provide the following documents:
1. A file note of a conversation between Mr Gladman and the solicitor acting for the secured creditors (File Note).
Relevant facts
A secured creditor group asked Mr Gladman to produce an investigative accounting report into Pacific Biotechnologies Ltd (Pacific) prior to it entering into administration.
Whilst preparing the report, Mr Gladman (who later became the administrator of Pacific) spoke to the secured creditor’s lawyer. During the course of this conversation the lawyer told Mr Gladman the legal advice he had provided to the secured creditors for the purpose of litigation with Pacreef. Mr Gladman’s file note of this conversation was in issue.
2. A valuation report prepared for the administrators and related correspondence (Valuation).
The Law
One reason why an administrator may not provide documents requested is that it is not reasonable to comply. For example:
- complying with the request would substantially prejudice the interest of one or more creditors or a third party (and that prejudice outweighs the benefit of complying with the request); or
- the information is subject to legal professional privilege.
The administrator has to establish they were acting in good faith and on a reasonable basis in refusing to provide the documents.
Findings by the Court
A) The File Note:
- it was reasonable for the administrator to refuse to provide it; and
- the administrator acted in good faith when he formed the view that the file note was subject to legal professional privilege.
B) The Valuation:
The administrator did not provide the report for a number of reasons including that the valuation set out the confidential finances and terms of trade (amongst other matters) of a third party.
The Court held that because Pacreef:
-
- provided an undertaking to use the documents solely for the current proceeding; and
- Pacreef already knows much of the confidential information in the valuation;
the administrator had to provide the valuation report to Pacreef.
Lessons
This case is a timely reminder that external administrators should be very careful to ensure that any rejection of documents is reasonable and their decision is made in good faith.
[1] Re Pacific Biotechnologies Ltd [2020] VSC 636
[2] pursuant to s 70-45 of the Insolvency Practice Schedule (Corporations) under Schedule 2 of the Corporations Act 2001
