Director denied access to documents of company in receivership

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1 July 2011

In the recent case of Oswal v Burrup Holdings Limited [2011] FCA 609, a director of a company in receivership was denied access to documents relating to the potential or actual sale of assets or shares of the company, some of which were available to the director by other means. The director’s application for access was made pursuant to both the Corporations Act 2001 (Cth) (Act) and the common law.

DIRECTOR’S RIGHTS TO INSPECT DOCUMENTS

The Court recognised that under the common law, directors have a right to inspect books and records (personally or by their agent) which relate to the affairs of the company. The common law right is supplemented by a statutory right of access set out in section 198F of the Act. In contrast to the position at common law, the statutory right does not permit inspection by an agent. However, a director’s right of access is not absolute: The court has a discretion in determining whether or not to order inspection.

Where a receiver is requested to provide books and records to a director, “a receiver will be justified in refusing to … where to do so would impede the receiver in the proper exercise of his or her functions or will impinge prejudicially upon the position of the debenture holder by threatening or imperilling the assets which are subject to charge.

The Court refused the director’s application made pursuant to the common law and section 198F of the Act for access to the company’s books and records. The Court found that the access, if permitted, would be so onerous on the receivers that it would divert the primary responsibility of the receivers to realise the assets and sell the existing business: “The inspection proposed raises the real risk of threatening the performance of the receiver.

The director did however have a small triumph, obtaining access to documents relating to the financial records of the company pursuant to an application made under sections 421 and 290 of the Act.

Comments

If receivers can show that complying with a request from a director to provide access to inspect documents of a company will inhibit their ability to carry out their appointed role, they may have a strong argument to resist the order to provide access.

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