THE BEHAVIOURAL AND DYNAMICS SHIFTS OF A VIRTUAL COURTROOM.
During Melbourne's 2020 COVID-19 lockdowns we had a rather unusual scenario where we publicly examined nine people in a virtual courtroom further to a liquidation our Melbourne office administered. The outcomes were somewhat unexpected.
A public examination is a court-ordered investigation to discover more information about a company's affairs. They are a useful investigative tool and the best process to uncover the truth as, importantly, public examinations are held in court under oath (and examinees are warned of the perjury consequences). The examinee's evidence is admissible in future legal proceedings, however, examinees can claim legal privilege to evidence given when providing their responses.
Section 596A of the Corporations Act 20011, allows the court to approve examinations of officers (which includes directors) and provisional liquidators of a company. Section 596B provides the court wide discretion to approve a person to be publicly examined when they've been involved in some manner in the company's 'examinable affairs', or may be able to give information about the company's examinable affairs (including a spouse or relative, accountants, solicitors, or other advisors). "Examinable affairs" is defined broadly and generally is any company affairs from formation through to its winding up.
In the public examination during COVID-19 lockdown we examined the directors, their spouses, and a legal advisor the company engaged. An immediate disadvantage to our legal counsel (acting for us as the liquidator) was the lessened ability to read the examinees' body language, and that the examinees were in the comfort of their own home instead of in a courtroom witness box.
Of course, initially there were the usual audio and visual issues. A number of parties examined were reduced to tears (which is not uncommon in public examinations, even when conducted virtually it would seem) given the situation's severity and generally unnerving circumstances examinees suddenly find themselves in. Conversely, others were relaxed in a recliner chair with their face so close to the screen you could almost pluck the digital nose hairs.
However, the most surprising moments, unlikely to be witnessed again in court (virtual or not), came from one examinee who determined it appropriate, while under oath, to take a relaxant prescription drug—ensuring it was noted on the transcript—and smoke cigarettes. The examinee happily puffed away while answering questions and at times seemed to be blowing smoke rings in the camera's general direction. Commonly, the response 'privilege' preceded expletive-ridden answers given in a haze of smoke not seen since Jimi Hendrix's Purple Haze performance at Woodstock in '69. The digital air only seemed to clear when the examinee had something more than "no" or "I don't recall" to say. The equally striking (and impressive) thing was the legal counsel's and registrar's poker faces while this played out. At best, there may have been a mere subtle raised eyebrow (which did not make it into the transcript).
In the end these behavioural and dynamic shifts did not distract from our purpose of finding the truth as to the company's affairs. Potential claims were identified against some directors (such as director duties breaches). An unexpected result was a potential professional negligence claim against the company's legal advisor, which was identified when it became apparent they had tried to achieve the best outcome for the directors, their spouses, and the company. The issue presented was that the directors' and spouses' personal interests were not aligned with the company's best interests.
A key lesson is that advisors can also be in the firing line during public examinations, and this matter serves as a reminder of the critical importance to ensure independence when acting for a number of parties with competing interests.
Footnote
1The Bankruptcy Act 1966 has public examination provisions similar to those in the Corporations Act, with the starting point being section 81.
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