Snelgrove v Great Southern Managers Australia Limited (In liq) (Receiver and Manager Appointed) [2010] WASC 51

In Snelgrove v Great Southern Managers Australia Limited (in liq) (Receiver and Manager Appointed) [2010] WASC 51 the Supreme Court of Western Australia granted leave, under section 500 of the Corporations Act 2001 (Act), to members of a managed investment scheme to commence an action against the scheme’s responsible entity, Great Southern Managers Australia Ltd (GSMAL) which was in liquidation.

The members of the scheme also sought leave to inspect the insurance policies held by GSMAL. 

Of particular significance in this case, Le Miere J assessed the issue of whether the insurance policies are ‘books of the company’ able to be inspected by creditors under section 247A of the Act.

Facts

Each of the plaintiffs in these proceedings was a member of either the 2006 Beef Cattle Project or the 2007 Beef Cattle Project managed investment schemes (Schemes) of which GSMAL was the responsible entity.

In October 2008, GSMAL convened a meeting of Scheme members to bring special resolutions:

• transferring members’ interests in the Scheme property to a related entity of GSMAL in exchange for shares in Great Southern Group’s ultimate holding company; and
  
  
• amending the Scheme’s constitution to enable the responsible entity to propose an arrangement to scheme members which would become binding on all scheme members, even though only approved by 50% of the scheme members in number and 75% in value of votes cast.  

The resolutions passed, however the Scheme members alleged that:

• the resolutions were not lawfully passed;
  
  
• there was inadequate disclosure;
  
  
• the arrangement was in the interests of the Great Southern Group, but not in the best interests of the Scheme members; and
  
  
• they were only passed as a result of GSMAL’s directors offering financial inducement to some scheme members.

The schemes collapsed and GSMAL was placed into liquidation. Various members sought to commence proceedings to recover their losses. As GSMAL was in liquidation, the plaintiffs required leave to commence proceedings.

The plaintiffs applied for leave to commence proceedings for the inspection of GSMAL’s books pursuant to section 247A of the Act in order to determine whether the intended claims against GSMAL and its various directors were covered by GSMAL’s insurance policy.

Section 247A

Under section 247A of the Act, a member of a scheme who is acting in good faith and for a proper purpose may apply to the court for an order authorising inspection of the scheme’s books.

Liquidator’s submissions

The liquidators submitted that the plaintiffs should not be granted leave to inspect the insurance policies of the company. Their arguments were:

• the plaintiffs did not have standing to bring the application. An application for an order pursuant to section 247A of the Act can only be brought by a member of the registered investment scheme;
  
  
• the insurance policies which granted the indemnity did not constitute books of the Schemes;
  
  
• the use of section 247A of the Act to access GSMAL’s insurance policies was not a ‘proper purpose’; and
  
  
• in the circumstances, it was inappropriate for the court to exercise its discretion in the plaintiff’s favour.

Decision

Le Miere J concluded, in relation to the submissions above, that:

Standing

The Schemes had not been wound up in accordance with sections 601NB and 601NC of the Act, and accordingly each of the plaintiffs were still members of the Scheme, holding the same rights as scheme members. Consequently, the plaintiffs had standing to bring an application for an order pursuant to section 247A of the Act. 

Books of the company

The legal title of books is vested in the responsible entity and therefore may be ‘books of the scheme’. His Honour said that the terms ‘books of the scheme’ should be given a ‘broad construction so as to facilitate the inspection of documents relevant to the affairs and interests of the Scheme’.

Insurance policies (which may respond to the plaintiffs’ claims) are for the benefit of the scheme members as well as their responsible entity, and insurance policies are not to be distinguished from the affairs of scheme members.

In granting leave under section 500(2), the discovery of a relevant insurance policy would expedite the matter’s resolution.

Proper purpose

The inspection of insurance policies for the purposes of investigating whether there were sufficient grounds for seeking to bring an action against GSMAL was a proper purpose within the ambit of section 247A of the Act.

Le Miere J based his decision on case management principals and the potential use of the parties’ public resources being spent on economically unviable actions. He held that the existence of insurance policies affects the economic viability of an action and the economic viability of an action is a proper purpose.

Comment

This decision favours a broad construction of shareholders’ and scheme members’ rights to inspect books.

It demonstrates that insurance policies that may cover claims which creditors or members have against a company, may now be inspected under section 247A of the Act and that this extends to a right to inspect merely to ascertain whether a relevant policy even exists.

The decision confirmed that insurance policies, particularly those of insolvent companies, are increasingly likely to be ordered to be produced in pre-litigation applications.

For further information please contact Partner Alison Robertson on 08 9288 6872 / alison.robertson@lavanlegal.com.au or
Associate Stacey Fuller on 08 9288 6719 / stacey.fuller@lavanlegal.com.au.