Electronic data and digital information form an integral part of most companies’ books and records. In the course of an external administration, tendering those electronic books and records can be an essential aspect of any litigation commenced by an external administrator.
However, some uncertainty persists about whether data comprises part of a company’s “books” for the purposes of admissibility under s 1305 of the Corporations Act.
The Western Australian Supreme Court recently considered whether a “Quickbooks” software data file formed part of a company’s books for the purposes of s 1305 of the Corporations Act1 (Corporations Act)>: see Bryan Kevin Hughes as liquidator of Westgem Investments Pty Ltd (in liq)(receivers and managers appointed) v Commonwealth Bank of Australia Ltd2 (Hughes).
A dispute had arisen concerning voidable transactions which the liquidator, Mr Hughes (Liquidator), sought to recover from the defendant, the Commonwealth Bank of Australia (Bank).
In support of his claim, the Liquidator sought to tender, in reliance upon s 1305 of the Corporations Act, a QuickBooks data file stored on a USB. s 1305 provides:
“A book kept by a body corporate under a requirement of this Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book.”
The Liquidator argued that the data file was part of the Company’s books because it was an “electronic record” of “financial information”, and thus fell within the definition of a book under s 1305. Further, the data file comprised financial information kept for the purposes of s 286 of the Corporations Act, which mandates financial record-keeping for a company. Accordingly, the data file formed part of the Company’s books within the meaning of the Corporations Act.
The Bank contested the Liquidator’s position on this evidence. The arguments advanced in support of the Bank’s position included that:
Tottle J held the Quickbooks data file was admissible as a book for the purposes of s 1305 of the Corporations Act.
His Honour at - found it was unnecessary for the plaintiffs to prove the accuracy of the software with which they accessed the data file. His Honour observed that s 1305(2) provides “A document purporting to be a book kept by a body corporate is, unless the contrary is proved, taken to be a book kept as mentioned in subsection (1).”
Consequently, by virtue of s 1305(2), an electronic document viewable on a computer screen that purported to be a book of a company would comprise a book of that company unless proven otherwise. The burden fell to the Bank to demonstrate that the electronic file and/or the software used to access it was inaccurate or flawed, which the Bank had failed to do.
Tottle J noted the Bank’s argument that the data file had not been a book “kept” by the Company because a new report was generated every time the file was accessed had appeal “as a matter of language and logic”. However, His Honour further observed that the word books “should be construed expansively to include data retrieved in the form of reports from the data file”. To construe the word books narrowly “would undermine the legislative purpose of s 1305”. If this position was accepted, then courts would be placed in the burdensome position of requiring companies’ financial data to be submitted in its raw form, and onerous expert reports compiled to decipher the meaning and purpose of this data.
In summary, His Honour held at :
“it is a common practice for businesses to record and store financial information electronically and, for that purpose, businesses use accounting software packages such as 'Quickbooks'… a feature of accounting software packages is that data is retrieved by means of reports or financial statements by reference to particular dates or periods as such reports or statements are required. Whilst it must be acknowledged that the retrieval of data in report form involves processes of selection and calculation, the retrieval of data in report form is a method by which data in accounting software packages is accessed. To adopt a narrow construction of 'books' which excludes such reports from its ambit would not promote the purpose of the provision.”
Consequently, the Quickbooks data was admissible pursuant to s 1305 as “prima facie evidence of any matter stated or recorded in the book.”
The Court’s decision in Hughes is a common sense – and commercial - approach in an era when the majority of company books and records are maintained in digital form. A party seeking to exclude a company’s digital records bears the burden of proving there is some good reason for those files to not be included as prima facie evidence of their contents under s 1305. Hughes provides clarity and certainty to external administrators (or indeed others) regarding the ease with which a company’s digital files can be tendered as evidence under the Corporations Act.