Earlier this month the Full Court of the Federal Court dismissed an appeal by Mr Oswal from Barker J’s first instance decision in Oswal v Burrup Holdings Limited  FCA 609. This case is of particular significance as it confirms that receivers and managers may refuse to allow a director to access the books and records of the company where access could adversely impact on the realisation of secured assets.
The director of Burrup Fertilisers Pty Ltd (receivers and managers appointed) (BFPL) sought orders to inspect and take copies of seven categories of books and records of the company. The director relied on sections 198F, 290, 421 and 1303 of the Corporations Act 2001 (Cth) (Corporations Act) and on general law principles. The first instance judge permitted the director to inspect several categories of documents but refused relief in respect of a number of other categories of documents.
On appeal, the director sought access to inspect the books and records in all (except two) categories in respect of which the primary judge declined to grant relief. The documents and records being considered on appeal were all created or received after the receivers and managers were appointed.
In the appeal case, the director abandoned all claims under the Corporations Act and relied on general law principles. The Court of Appeal affirmed the principle that a director has a common law right to inspect the documents of the company, noting that the Court has a residual discretion as to whether or not to order inspection.
In its consideration, the Court drew a distinction between the principles at play in pre and post administration applications noting that:
in a pre-administration application for inspection, the Court will generally presume that a director intends to act in a way consistent with his or her duties and will not use the information for an improper purpose. The right to access is not conditioned on the directors demonstrating a “need to know”, although access may be refused where there is clear proof of a misuse of power; and
in a post administration application there is a shift in focus to the role and function of the receiver rather than the residual duties of the directors. As the purpose of the receiver’s entitlement to possession is to administer the company and realise its assets the receiver will be justified for refusing to grant access to the documents 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 the assets the subject of the charge.
The Court of Appeal found that the appellant failed to demonstrate any error in the primary judge’s application of the relevant principles. The Court affirmed the decision that if inspection was granted it would place an unduly onerous burden on the receivers in circumstances where there was no basis to suggest the receivers were acting improperly and this burden may interfere with the primary function of the receivers (to realise the company’s assets).
Lavan Legal comment
This case is of significance for receivers and managers dealing with requests from directors of companies to inspect company books and records. If receivers and managers are concerned that granting access may interfere with the performance of their role in realising the company’s assets they should consider rejecting applications for access on that basis. It is likely the receivers’ position will be upheld in court in a case where there is little doubt that the receivers are acting properly.