Direc­tors’ Access to Com­pa­ny Books: Nav­i­gat­ing Statu­to­ry & Com­mon Law Require­ments in Australia

To man­age a com­pa­ny and dis­charge their duties, direc­tors need access to com­pa­ny infor­ma­tion. Ten­sion between direc­tors can arise about what access they can have to com­pa­ny books, par­tic­u­lar­ly in the con­text of a dis­pute at board lev­el. How­ev­er, direc­tors have statu­to­ry rights and com­mon law rights to access com­pa­ny books. This arti­cle sum­maris­es those rights and briefly dis­cuss­es what hap­pens if they are ignored. 

What are ​‘books’?

‘Books’ is defined in the Cor­po­ra­tions Act 2001 (Cth) to include:

• a reg­is­ter;
• any oth­er record of information;
• finan­cial reports or finan­cial records; and
• a doc­u­ment.

What rights of access does a direc­tor have to inspect com­pa­ny books?

Com­pa­ny constitution

As with many issues relat­ed to the inter­nal man­age­ment of a com­pa­ny, the first place to look is the com­pa­ny’s con­sti­tu­tion. It may say some­thing about direc­tors’ rights to access cer­tain com­pa­ny records. How­ev­er, the con­sti­tu­tion will not deal with all rights of access. 

Cor­po­ra­tions Act

Pro­ceed­ings – cur­rent or contemplated 

Sec­tion 198F(1) of the Cor­po­ra­tions Act per­mits a cur­rent direc­tor to inspect the books (oth­er than its finan­cial records) of the com­pa­ny at all rea­son­able times for the pur­pose of a legal proceeding:

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

For­mer direc­tors have sim­i­lar rights for 7 years after they cease to be a direc­tor, and in that case, the right extends to the com­pa­ny’s finan­cial records, as set out in sec­tion 198F(2) of the Cor­po­ra­tions Act.

Finan­cial records 

Sec­tion 290 of the Cor­po­ra­tions Act per­mits a direc­tor to access ​‘finan­cial records’ at all rea­son­able times. 

‘Finan­cial records’ are defined in the Cor­po­ra­tions Act to include:

• invoic­es, receipts, orders for the pay­ment of mon­ey, bills of exchange, cheques, promis­so­ry notes and vouch­ers; and
• doc­u­ments of prime entry; and
• work­ing papers and oth­er doc­u­ments need­ed to explain:

1. the meth­ods by which finan­cial state­ments are made up; and
2. adjust­ments to be made in prepar­ing finan­cial statements.

The right to inspect finan­cial records is lost once a direc­tor ceas­es to be a direc­tor (except the right under 198F(2) dis­cussed earlier).

Right to inspect finan­cial records in receivership 

Direc­tors can also inspect finan­cial records kept by a man­ag­ing con­troller of prop­er­ty of a com­pa­ny e.g. a receiv­er, pur­suant to sec­tion 421(2) of the Cor­po­ra­tions Act. Those are such finan­cial records the man­ag­ing con­troller is required to keep as cor­rect­ly record and explain all trans­ac­tions that the man­ag­ing con­troller enters into as the man­ag­ing controller. 

Com­mon law right of access

Direc­tors also have a com­mon law right to access com­pa­ny infor­ma­tion, which exist­ed before the intro­duc­tion of statu­to­ry rights in the Cor­po­ra­tions Act and its predecessor. 

In Gene­va Finance Ltd; Quigley (Receiv­er and Man­ag­er Appoint­ed) v Cook (1992) 7 ASCR 415, his Hon­our Owen J sum­marised some of the prin­ci­ples devel­oped through the com­mon law, which remain rel­e­vant today, including:

• A direc­tor owes fidu­cia­ry duties to the company.
• A direc­tor has a right of access to the books and records which relate to the affairs of the com­pa­ny. The right is an inci­dent of the office of a direc­tor and exists so that a direc­tor might prop­er­ly per­form his or her duties.
• The right of access to doc­u­ments gen­er­al­ly (as opposed to account­ing records) aris­es at com­mon law and the court has a resid­ual dis­cre­tion whether or not to order inspection.
• The posi­tion in rela­tion to access to account­ing records is specif­i­cal­ly dealt with in s 289(9) of the Cor­po­ra­tions Law (the pre­de­ces­sor to sec­tion 290(1) of the Cor­po­ra­tions Act) but the posi­tion may not be mate­ri­al­ly different.
• The right of access to doc­u­ments car­ries with it a right to take copies and a right to engage agents to car­ry out the inspec­tion where skilled assis­tance is nec­es­sary and pro­vid­ed that the duties of con­fi­den­tial­i­ty which the direc­tor owes will not be compromised.
• Gen­er­al­ly speak­ing, a court will pre­sume that a direc­tor intends to act in a way con­sis­tent with his or her duties and not to abuse the con­fi­dence reposed in the direc­tor by using infor­ma­tion for an improp­er pur­pose. A direc­tor does not have to demon­strate a ​“need to know” or fur­nish rea­sons before exer­cis­ing the right of access to documents.
• In the absence of clear proof that a mis­use of pow­er is involved (the onus of which lies on those assert­ing it) the court will be slow to pre­vent the exer­cise by a direc­tor of a right of the nature described.

If a receiv­er has been appoint­ed to com­pa­ny prop­er­ty, the receiv­er would be jus­ti­fied in 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 would impinge prej­u­di­cial­ly upon the posi­tion of the deben­ture hold­er by threat­en­ing or imper­illing the assets which are sub­ject to the charge.

What if the right to inspect is denied?

If a direc­tor is denied the right to inspect books of a com­pa­ny, in breach of the pro­vi­sions of the Cor­po­ra­tions Act referred to above, he or she may seek order of the Court com­pelling imme­di­ate inspec­tion of the book or the sup­ply of a copy of the rel­e­vant book under sec­tion 1303 of the Cor­po­ra­tions Act.

Sec­tions 290(2) and (4) of the Cor­po­ra­tions Act also empow­er the Court to make any order it con­sid­ers appro­pri­ate to grant or lim­it access for inspec­tion of com­pa­ny finan­cial records. 

Like­wise, the Court can grant relief to direc­tors denied their gen­er­al law right to inspect books of the company. 

Key take­away

Direc­tors have rights of access to com­pa­ny books. Those rights are not unlim­it­ed, how­ev­er, they can be quite broad. 

Court appli­ca­tions about access to com­pa­ny books can be cost­ly and time consuming. 

In cir­cum­stances where access is a statu­to­ry or gen­er­al law right, it should be grant­ed upon request by a direc­tor. How­ev­er, it may not be imme­di­ate­ly appar­ent whether a right to access exists, even to expe­ri­enced com­pa­ny direc­tors. In that case, legal advice should be sought to avoid a cost­ly argu­ment in court.