Battening Down the Hatches under the Insolvency Law Reform Act (ILRA): How to Resist a Request for Documents from Mr. Snoopy Creditor:

Written by Dr. Garry Hamilton, Senior Legal Consultant at Taylor David Lawyers

Introduction

It should now be clear to anyone involved with insolvency issues on a regular basis that the newly introduced provisions of the Insolvency Law Reform Act 2016 (Cth) (ILRA) give creditors extraordinary and unprecedented rights to demand information, reports and documents from external administrators (EXADs).

Insolvency Practice Schedule (Corporations) (IPS)

Under section 70-45 (1) of the IPS, an individual creditor may request an external administrator to:

1. give information;
2. provide a report; or
3. produce a document to the creditor.

The EXAD must comply with this request unless:

1. the information, report or document is not relevant to the external administration;
2. the EXAD would be breaching his or her duties by complying with the request; or
3. it is “otherwise not reasonable” for the EXAD to comply with the request.[1]

There is no guidance provided as to what may or may not be “relevant” to an external administration. Presumably, any EXAD’s litigation funding agreement which traditionally has been treated confidentially by the courts[2] would be relevant to an external administration. So arguably would be a retainer agreement between the EXAD and his or her solicitors, especially if the retainer provided for speculative work with an “uplift” in the event of a successful outcome for the EXAD. A costs agreement is not subject to legal professional privilege, except to the (rare) extent that it contains legal advice.[3]

These are examples of two documents which, if provided to a creditor who is being sued by the EXAD, may give that creditor a forensic advantage, such advantage not having been enjoyed by a creditor prior to the introduction of the ILRA.

Insolvency Practice Rules (IPR)

Subsection (3) of section 70-45 of the IPS provides that the IPR may prescribe circumstances in which “it is, or is not, reasonable” for an EXAD to comply with a request under subsection (3).

Section 70-15 of the IPR then specifies such circumstances. Apart from some rather gormless examples of circumstances set out by the drafter of the IPR,[4] the more substantive ones are where the EXAD, “acting in good faith”[5] is of the opinion that:

1. “complying with the request would substantially prejudice the interests of one or more creditors or a third party”;[6]
2. “the information, report or document would be privileged from production in legal proceedings”;[7]
3. disclosure of the information, report or document “would found an action by a person for breach of confidence”;
4. “there is not sufficient available property to comply with the request”;[8]
5. the request is “vexatious”.

In respect of (d) above, subrule (5) of Rule 70-15 of the IPR provides that if one pays the EXAD, then one is entitled to the information, report or document. Somewhat mysteriously it also provides to the same effect in circumstances where “the information, report or document has already been provided [to the requesting creditor]”.

One may well ponder why anyone would pay an EXAD for information, a report or a document that one already has, other than to simply annoy the EXAD. But then, is the obligation to provide the information, report or document, if paid for, inconsistent with the fact that such a request is likely “vexatious”?
The meaning of much of the drafting of those parts of the IPS and IPR set out above is vague and uncertain.

First Recommendation

In order to ensure that some annoying creditor which the EXAD may be suing does not get access to any funding agreement or retainer between an EXAD and his or her solicitors, the most obvious and indisputable mechanism is simply to ensure that both those documents contain appropriately worded confidentiality clauses.

That should be done with any future funding agreements and retainers and there would appear to be no compelling reason why existing agreements and retainers could not now be varied by the inclusion of an appropriately worded confidentiality clause.