In our article regarding the operation of s198F of the Corporations Act 2001 (Cth) (Corporations Act), we discuss company directors’ right to access and inspect company books at all reasonable times for the purposes of a legal proceeding.
In addition to the rights provided to the directors of a company, s247A of the Corporations Act provides that a shareholder may make an application to a court authorising it (or another authorised person) to inspect and copy a company’s books.
Do shareholders hold a general right to the books of a company?
A shareholder of a company does not have an automatic right to inspect that company’s books and records. However, a shareholder, in their capacity as a ‘member’ of the company, may make an application to the Court for an order to inspect a company’s books.
What is considered as the ‘books’ of a company?
Under the Corporations Act, the term ‘books’ includes:
- a register;
- any other record of information;
- financial reports or financial records, however compiled, recorded or stored; and
- any other document.
How can a shareholder request to inspect the ‘books’ of a company?
Pursuant to s247A, a shareholder of a company may make an application to the Court for an order authorising them (or another person on their behalf) to inspect the company’s books.
A person authorised by the Court to inspect the books of a company may also make copies of the books, unless the Court orders otherwise.
Requirement of ‘good faith’ and ‘proper purpose’
The Court may only make an order under s247A if it is satisfied that the shareholder is acting in ‘good faith’ and the inspection is to be made for a ‘proper purpose’. These requirements are composite and should not be considered as two separate requirements. This requirement must be proved objectively and, on a case-by-case basis.
Generally, whether an applicant (i.e. shareholder) is acting in ‘good faith’ and making the application for a ‘proper purpose’ depends on the specific facts before the Court. This can include matters such as the period that the applicant has held shares in the company, the extent and value of the applicant’s interest in the Company, and other factors the Court may deem relevant.
Examples where Courts have found that an applicant was acting in ‘good faith’ and the inspection was to be made for a ‘proper purpose’ include:
- where a company is suspected to have engaged in unfair conduct against its members and further information is required prior to commencement of proceedings (Re Augold NL [1987] 2 Qd R 297);
- where a member may suspect that a company’s directors are in breach of their duties and further information is required prior to commencement of proceedings (Humes Ltd v Unity APA Ltd (No 1) [1987] VR 467; or
- where a member may reasonably suspect that a company has entered into agreements affecting the assets of value held by the company (Re Claremont Petroleum NL (No 2) [1990] 2 Qd R 310).
Can a previous shareholder inspect the company books?
Pursuant to s247A(3), a previous shareholder who is granted leave of the Court under s 237 to bring or intervene in proceedings, may apply to the Court for an order to inspect company books. The Court may make such an order only if it is satisfied that:
- the previous shareholder is acting in good faith;
- the inspection is to be made for the purpose connected with:
- applying for leave under s237; or
- bringing or intervening in proceedings with leave under that section.
If you wish to obtain further advice in relation to your inspection rights as a current shareholder, contact Lionheart Lawyers on (02) 9299 0112.