The recent High Court case of Walton v ACN 004 410 833 Limited (formerly Arrium Limited) (in liquidation) [2022] HCA 3provides guidance on the purposes for which an examination of company officers may be pursued by ‘eligible applicants.’

Historically, examination powers could only be used for the predominant purpose of benefitting the company, its creditors or contributories. However, if the motivation of the eligible applicants in conducting an examination is for the purpose of investigating the merits of a potential class action, then use of the examination power will not necessarily be an abuse of process.

Arrium Limited (Arrium) was an ASX-listed steep producer with an iron mining operation. In 2014, Arrium announced a capital raising for the purposes of paying down a debt, but in 2015, it announced it would suspend or close its mining operation, acknowledging that the value of its mining operations had reduced by approximately A$1.335 billion. The company entered administration and liquidators were appointed in 2019.

The Applicants were shareholders of Arrium who sought to investigate Arrium’s disclosures to the market prior to the 2014 capital raising. They wrote to ASIC in 2018 seeking authorisation as an ‘eligible applicant’ within the meaning of the Corporations Act so that they could ask the Court to issue examination and production orders to former Officers of Arrium.

The case went all the way to the High Court, which decided that there was no abuse of process in using the examination power under the Corporations Act, despite the primary purpose of the Applicants to investigate and pursue potential claims, which would be for the benefit of a limited number of shareholders rather than the company as a whole. An eligible applicant is not under a requirement to show that the examination would achieve any specific result or outcome and there is no longer any requirement to show that the purpose of the examination be for the benefit of the company, its creditors and contributories.

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