Dispute Resolution Agenda: accessing company information

05 February 2018 Topics: Litigation and dispute resolution, Compliance and corporate governance, Middle market enterprises (MME), Family business

Often private companies are collectively owned by families, friends or close business associates who, at incorporation, saw little need to enter into stakeholder agreements to provide them with access to company information.

However, if these relationships break down and there are suspicions of misconduct by the company, directors or officers, one of the first hurdles encountered is how to access company information to substantiate those concerns.

Rights of shareholders

There is no broad right for shareholders to obtain access to company information. However, the Corporations Act 2001 (Cth) does provide specified rights of access.

Constitution

As a starting point, shareholders are entitled to receive a copy of the company’s constitution within seven days of a written request.1 The company may charge a small fee for this service.2

Obtaining a copy of the constitution can be useful for determining voting rights, buyout procedures and other corporate governance issues.

Financial report of small proprietary company

If the company is a ‘small proprietary company’, shareholders are entitled to request the company prepare and provide them with a financial report and directors’ report, provided that the request is made within 12 months of the end of that financial year.3

A ‘small proprietary company’ is a company that, for a financial year, has two of the following three characteristics:

  • consolidated revenue is less than $25 million;
  • consolidated gross assets are less than $12.5 million; and
  • fewer than 50 employees.4

Unfortunately, there are no automatic rights available to a shareholder in a small proprietary company to obtain earlier financial records.

Court authorisation to access books of the company

Shareholders can make an application to the courts to authorise access to the ‘books’ of a company if they are acting in good faith and for a proper purpose.5

What is in ‘good faith’ and ‘for a proper purpose’ is somewhat nebulous, but essentially covers where there is a case for investigating past or future wrongful or undesirable conduct.6  An application cannot be made merely because a shareholder is concerned with the management of the company.

Where a person has a significant shareholding or has been a shareholder for a considerable time, a court will more readily grant an application.7

The definition of company ‘books’ is quite broad and, among other things, includes:

  • a register;
  • any other record of information;
  • financial reports or financial records, however compiled, recorded or stored; and
  • documents8 that are the property of the company.9

Relevantly, where an application is made to access company books, the application should be limited to those books ‘particularly relevant to the purpose for which the inspection is sought’.10

On a practical note, shareholders may not always need to actually apply to a court to access company documents. In our experience, after writing to a company or its solicitors, access to certain company books may be granted to avoid the company incurring costs of defending an application.

Rights of directors or past directors

If you are, or have been, a director of a company there are additional rights to access company information under the Corporations Act.

For example, a director has a general right to access financial records where reasonable.11 A director may also inspect the books of the company (other than its financial records) for the purposes of legal proceedings to which the director is a party, proposes to bring in good faith, or has reason to believe will be brought against them.12

For up to seven years after ceasing to be a director, directors have a right to inspect the books of the company (including financial records) for the purposes of legal proceedings to which they are a party, propose to bring in good faith, or have reason to believe will be brought against them.13

Rights of prospective applicants in court proceedings

An often overlooked method of obtaining company information before commencing court proceedings is to make an application to the Federal Court.

Rule 7.23 of the Federal Court Rules 2011 (Cth) provides that a prospective applicant can apply for discovery from a prospective respondent if the prospective applicant:

  1. reasonably believes that they may have a right to obtain relief from the prospective respondent;
  2. after making reasonable enquiries, does not have sufficient information to decide whether to start proceedings; and
  3. reasonably believes that:

(a) the prospective respondent is likely to have control of documents relevant to the prospective applicant’s proceedings;

(b) inspection of the documents would assist them in making the decision about whether to start proceedings.

This provision is generally favourable towards the prospective applicant and does not require the applicant to make out a prima facie case, however it cannot be used for a fishing expedition.14

Accordingly, this may be a viable option available to access company information should there be concerns about misconduct by the company, its directors or officers.

Comments

Obtaining company information is often a frustrating process where misconduct is suspected and the company is refusing access. However, there are legal mechanisms available to overcome these issues.

If you would like more information about these issues please contact Rocco Russo, Imogen Kenny or another member of our litigation and dispute resolution team on +61 7 3231 2444.

Print

  1. Corporations Act 2001 (Cth) s 139.
  2. Corporations Regulations 2001 (Cth) sch 4 item 2.
  3. Corporations Act 2001 (Cth) s 293.
  4. Corporations Act 2001 (Cth) s 45A(1)-(2).
  5. Corporations Act 2001 (Cth) s 247A.
  6. Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237.
  7. Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389, 393.
  8. Corporations Act 2001 (Cth) s 9 (definition of ‘books’).
  9. Engel v National Biodiesel Ltd [2015] FCA 1114 [28]-[29].
  10. Engel v National Biodiesel Ltd [2015] FCA 1114 [10]
  11. Corporations Act 2001 (Cth) s 290.
  12. Corporations Act 2001 (Cth) s 198F(1).
  13. Corporations Act 2001 (Cth) s 198F(2).
  14. Toll Transport Pty Ltd v Fleiter [2017] FCA 376 [9] citing St George Bank Limited v Rabo Australia Limited (2004) 211 ALR 147 [26].

 

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This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please let us know.