It is none of your business: when can directors inspect books and records of a company?

A common problem that can arise in the context of corporate disputes relates to director access to company information and records. Such disputes arise when directors request to inspect books and records of the company but are refused the opportunity to do so.

The Corporations Act 2001 (WA) (the Act) sets out the various circumstances where a director is entitled to access to company information.

Directors right of access to financial records

The Act provides that a director of a company has a right of access to the financial records of a company at all reasonable times.1

Where the director is refused such access, they can apply to the Court for orders authorising a person to inspect the records on the director’s behalf.2  Where such an order is made, the authorised person can also make copies of the records, unless the Court orders otherwise.3  If such an application is made, it is prudent for the company to consider whether it should seek orders limiting:

  • the use of any the information inspected; or
  • the right of a person who inspect the records to make copies.4

Director access to company books while a director

The Act also provides that a director may also inspect and make copies the books of the company (other than its financial records) for the purposes of legal proceedings:

  • to which the director is a party; or
  • the director proposes to bring in good faith; or
  • the director has reason to believe will be brought against them.5

It is important to note that the Act provides a company must not refuse access; that is, a company must allow a person to exercise their rights to inspect or take copies of the books for the purposes of those proceedings.6

Access to company books after ceasing to be a director

A director also has the right to inspect and make copies of the books of the company (including its financial records) for the purposes of legal proceedings:

  • to which the director is a party; or
  • the director proposes to bring in good faith; or
  • the director has reason to believe will be brought against them,

for up to seven years after they cease to be a director of the company.7

Again, it is important to note that the Act provides a company must not refuse this access; that is, a company must allow a person to exercise their rights to inspect or take copies of the books for the purposes of those proceedings.8

Court's power to order compliance

In circumstances where a company refuses to grant a director access to the books and records of the company in the circumstances outlined above, the Court has the power to order the company to comply.9  However, the Court will consider various factors before ordering such compliance.

For an application to be successful under section 198F of the Act, the director in question must establish (among other things) the factual basis for the application by more than unsubstantiated assertions.10 For example, applications have failed where:

  • the statement of claim in the relevant proceedings did not plead any facts material to the claim for access to the company’s books under section 198F of the Act;
  • there was no evidence that the plaintiff was a party to other proceedings or that they had reason to believe the proceedings would be brought against them; or
  • there was no evidence that the director proposed in good faith to bring any such proceedings.11

Lavan comment

Directors have a right to inspect financial records and books of a company both during their term of appointment as a director and for up to seven years after they retire. Where directors make a valid request to inspect, the company should comply with the request. Failure to do so may result in a costly application which otherwise could have been avoided.

That said, notwithstanding a valid request being made, a company should consider whether there are circumstances where it should seek to place limits on the use of any information inspected and/or the right of a person to make copies of any information inspected.

There are various factors that need to be taken into account in order to determine whether a director has a valid basis to make a request to inspect and whether a company ought to comply with such a request. Each situation is different and needs to be carefully considered. Lavan’s Corporate Disputes team is able to provide you with advice that is specific to your situation.

18 June 2019
Corporate Disputes
AUTHOR
Cinzia Donald
Partner
AUTHOR
Lorraine Madden
Special Counsel
SERVICES
Corporate Disputes


FOOTNOTES

[1] Corporations Act 2001 (WA) s 290 (1). 
[2] Ibid (WA) s 198F(2); Ibid s 198F(3).
[3] Ibid (WA) s 198F(4).
[4] Ibid (WA) s 290 (4).
[5] Ibid s 198F(1); Ibid s 198F(3).
[6] Ibid s 198F(4).
[7] Ibid s 198F(2); Ibid s 198F(3).
[8] Ibid s 198F(2); Ibid s 198F(3).
[9] Ibid s 1303.
[10] Stewart v Normandy NFM Ltd [2000] SASC 344.
[11] Re Motasea Pty Ltd (2014) 97 ACSR 589.