Deloitte, the voluntary administrator of Babcock & Brown Limited (BBL), released its Section 439A report to creditors and noteholders on Monday. The report found that liquidation was "the only option available".

"Liquidation will allow us to investigate the matter in greater depth, conduct public examinations and, as a liquidator, receive increased powers to commence recovery actions," Deloitte partner David Lombe said in a statement.

Clayton Utz partner and insolvency law specialist David Cowling explained that by examining directors under oath, liquidators often hope to gather evidence for use in subsequent court proceedings against either the directors or third parties. Examinees cannot refuse to answer questions on the grounds of self-incrimination, he said.

However, Cowling cautioned that liquidators' examinations are of limited practical value.

"As a method of gathering evidence, their practical utility is limited to whatever use can be made of that evidence. There is no point in gathering information for its own sake. An examination might produce overwhelming evidence of a director's breach of duty or liability for insolvent trading, but that's useless if the director has no assets and isn't covered by insurance," he said.

"On the plus side, an examination might be a useful way to bring some pressure to bear on a director."

According to Cowling, a detailed record of a director's personal finances is the likely to be the most useful information to emerge from the investigation.

"In reality, the most useful thing to come out of a directors' examination is often a picture of the director's personal finances. It is this, rather than any sudden revelation of wrongdoing on the director's part, which will be a major determinant when a liquidator decides whether to begin legal proceedings against the director: a strong legal case is useless if there is no prospect of actually recovering any money from the director," he commented.

"The prospect of a legitimate examination of his personal finances and dealings may make a director more willing to agree to make a financial contribution to the winding up. To paraphrase Dr Johnson: 'When a man knows he is to be publicly examined in a fortnight, it concentrates his mind wonderfully'."

Former BBL directors who could be called for questioning include former chief executive Phil Green, former finance director Michael Larkin, chairman Elizabeth Nosworthy and her predecessor, Jim Babcock.

The possibility of a recovery action funded by IMF was also raised by the Deloitte report.

- Laura MacIntyre