A director’s right to access company books and financial records

What are the ‘books’ of a company?

The books of a company may include:

• a register;
• and any other record of information; and
• financial reports or financial records, however compiled, recorded or stored; and
• any other document.

Does a director have a right to inspect the books of a company?

Section 198F of the Corporations Act provides that a director may inspect the books of the company, other than its financial records, at all reasonable times for the purposes of a legal proceeding to which:

1. the director is an existing party;
2. the director proposes to bring in good faith; or
3. that the directoar has reason to believe will be commenced against him or her.

This right also extends to making copies of the books for the purpose of the legal proceedings in question.

Does a previous director hold a right to inspect the books of a company?

Pursuant to section 198F(2), a previous director will still have the right to inspect and make copies of the company’s books for 7 years after ceasing to be director for the purposes of a legal proceeding to which:

1. the director is an existing party;
2. the director proposes to bring in good faith; or
3. that the director has reason to believe will be commenced against him or her.

For the purposes of section 198F, a director may only exercise this right if for the purposes of legal proceedings commenced in his or her personal capacity. This section does not extend to legal proceedings commenced by a corporation.

Request for ‘financial records’

Notwithstanding section 198F, a current company director may access financial records under section 290 of the Corporations Act.

Financial records may include:

• invoices, receipts, orders for payment of money, bills of exchange, cheques, promissory notes and vouchers;
• documents of prime entry;
• working papers and other documents needed to explain methods by which financial statements are made up and adjustments to be made in preparing financial statements.

Section 290(1) provides that a director of a company, registered scheme or disclosing entity has a right of access its financial records at all reasonable times. Under section 290(2), the Court may also authorise a person to inspect financial records on the behalf of the director, upon application to the Court.

What happens if the company does not allow the director to inspect or make copies of the company’s books?

A company must allow a director or former director to exercise their rights to inspect or take copies of the books pursuant to section 198F.

If a company refuses to permit the inspection of any book or to provide a copy of any book to the requesting director or previous director, he or she may commence legal proceedings seeking an order of the Court to compel an immediate inspection of the book or order for a copy to be supplied pursuant to section 1303 of the Corporations Act.

However, there are several factors the Court may take into account when deciding whether a director has satisfied the requirements under s198F(1) in making a reasonable request to inspect the company’s books. If you require advice in relation to your rights in relation to s198F, please do not hesitate to contact Lionheart Lawyers on (02) 9299 0112.