Commissions of Enquiry as set out in Sections 415 and 417/418 of the Companies Act serve as a vital tool for unveiling and unravelling possible misconduct or mismanagement within an insolvent company, prior to liquidation. Through these enquiries, a liquidator or creditor can confidentially gather crucial information essential for winding up the company’s affairs, which may include evidence as to who is responsible for the company’s collapse.
The procedure for initiating such an enquiry most often entails an application to the High Court, appointing a commissioner (generally a retired judge or senior legal practitioner), and issuing subpoenas compelling witnesses to attend and give evidence.
Gillan and Veldhuizen Inc., a commercial law firm specialising in corporate insolvency matters, aims to provide clarity regarding these sections of the Insolvency Act for creditors facing situations where companies become insolvent. “These sections serve as mechanisms to conduct enquiries into the circumstances leading to the insolvent company’s demise,” explains Alana-Lee Slinger, a candidate attorney at the firm.
The purpose is for liquidators and possibly creditors, with proven claims, to interrogate the former corporate controllers of the insolvent company regarding matters relating to the company’s financial affairs both preceding and following its closure. Under Section 415, a director or any person who is subpoenaed for interrogation cannot refuse to answer questions on the basis that it may incriminate him/her. However, any incriminating evidence obtained from such interrogations is generally not admissible in criminal proceedings, except where he/she is charged with an offence, or as per specific circumstances outlined in the Act.
Any individual subpoenaed to attend the creditors’ meeting is entitled to receive witness fees, which will be disbursed from the company’s funds. Additionally, a director or any other officer of the company who is subpoenaed to attend any creditors’ meeting occurring after the second meeting is entitled to an allowance from the company’s funds to cover expenses incurred in attending.
Section 417 empowers the Commissioner to summon directors, officers, debtors and even the auditors or accountants of a company under liquidation, to be questioned about company property, indebtedness to the company or any information pertinent to the company’s trade, dealings and affairs. Similar to Section 415 persons summoned under Section 417 are obliged to answer questions, even if their responses may incriminate them and failure to attend the proceedings without a legitimate excuse may result in arrest.
The initiator of the enquiry under Sections 417/418 is responsible for covering associated costs and expenses, unless the Court directs otherwise. Furthermore, enquiries conducted under these sections are typically kept confidential unless directed otherwise by the Commissioner.
These enquiries present a valuable instrument for both liquidators and concerned parties in revealing potentially unethical conduct by company directors and managers, and in particular enable creditors to assess whether grounds exist to recoup their losses directly from the individuals implicated in the company’s operations.
