Show me the documents! Shareholders’ access to company documents

11 October 2024

Shareholders do not have a statutory right to inspect the books of the company. This can pose problems for a shareholder who wishes to make decisions as to whether to exercise the rights of a shareholder in circumstances where there has been a breakdown in the relationship between the shareholder and the company. Without access to the books of the company, it can be difficult for the shareholder to investigate their concerns of any misconduct of the company and to take the appropriate action.

Without express provision in the company’s constitution or shareholder agreement for a right to inspect the books of the company or consent to inspection of the books, a shareholder will need to apply to the Court. Section 247A(1)(a) of the Corporations Act 2001 (Cth) (the Act) provides, on application by a shareholder, for an order for inspection of the books of the company.

The Court will only make the order if the shareholder satisfies the Court that the:

  1. applicant is acting in good faith; and
  2. inspection is to be made for a proper purpose.1

A helpful summary of the meaning of ‘good faith’ and ‘proper purpose’ and some of the more relevant principles is contained in a judgment of the Full Court of the Federal Court comprised of Siopis, Gilmour and Katzmann JJ in Mesa Minerals Ltd v Mighty River International Ltd (2016) 241 FCR 241, drawing from Debelle J in Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344 and the additional principles identified by Gordon J in Hanks v Admiralty Resources NL (2011) 85 ACSR 101 (Hanks), at [22]:

(1) … That is to say, as Brooking J put it in Knightswood at 156:

[T]he reference to good faith colours and so reinforces the requirement of proper purpose. Acting in good faith and inspecting for a proper purpose means acting and inspecting for a bona fide proper purpose. It is as if the case was one of hendiadys.

(3) “Proper purpose” means a purpose connected with the proper exercise of the rights of a shareholder as shareholder and not, for example, as a litigant in proceedings against the company or as a bidder under a takeover scheme: Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115 (Cescastle) at 117-118.

(9) Provided that the applicant’s primary or dominant purpose is a proper one, it is not to the point that an inspection might benefit the applicant for some other purpose: Unity APA Ltd v Humes Ltd (No 2) [1987] VR 474 (Humes) at 480; Barrack Mines Appeal at 615; Cescastle at 117-118.

(10) Applicants do not necessarily lack a proper purpose merely because they are hostile to other directors: Humes at 480.

(11) Neither the fact that an applicant may have had sufficient information earlier nor the fact that an applicant may have other means of obtaining the information is detrimental to an application under the section: McNeill at [23]-[25].

An applicant who has a significant holding and who has been a shareholder for some considerable time will satisfy s 247A of the Act more easily than a shareholder who has recently acquired a nominal shareholding.2

Examples

In Unity APA Ltd v Humes Ltd (No 2) [1987] VR 474, the Court allowed a shareholder to inspect the books of the company in relation to the proposed acquisition of another company which required the company to almost double its share capital.

In Hanks, the Court allowed a shareholder to inspect the books of the company as the shareholder had suspicions that the directors had accepted an offer to sell a controlled entity without considering a competing offer.

In Rasley (Singapore) Pte Ltd v Financial & Energy Exchange Ltd [2020] FCA 1462 (Rasley) at [24], Jackson J explained that the words ‘proper purpose’ means ‘a purpose reasonably connected with the proper exercise of the rights of a shareholder as a shareholder, as opposed to purpose connected with some other interest‘. Jackson J identified examples where the purpose was unrelated to the applicant’s status as a shareholder, and therefore the application was not made for a proper purpose, such as:

  1. idle curiosity;
  2. harassment or blackmail; and
  3. sharing confidential information with a competitor of the company.

What documents can be inspected?

Inspection under s 247A of the Act is broad and extends to the books of the company. Section 9 of the Act defines ‘books’ as including:

(a) a register; 

(b) any other record of information;

(c) financial reports or financial records, however compiled, recorded or stored; and

(ca) sustainability reports of sustainability records, however complied, recorded or stored; and

(d) a document

but does not include an index or recording made under Subdivision D of Division 5 of Part 6.5.3

The definition means that the vast majority of business records may be the subject of an order for inspection under s 247A of the Act.

Conditions on Inspection

The inspection order once obtained is not without limitation. Indeed, s 247B of the Act allows the Court to make any ancillary orders to an order for inspection that it considers appropriate. This includes an order limiting:

  1. the use that a person who inspects books may make of the information obtained during the inspection; or
  2. the right of the person who inspects the books to make copies.

In Rasley, Jackson J, at [102] and [203], considered, and later made orders:

  1. limiting the inspecting shareholder’s use of the information obtained from the inspection for only the purpose of allaying concerns or the consideration, preparation and prosecution (including participating in alternative dispute resolution processes) of potential litigation such as derivative action or oppression applications; and
  2. prohibiting the inspecting shareholder from communicating or disclosing information obtained from the inspection to anyone other than their legal advisers and such other persons necessary to enable the shareholder to determine whether to apply for relief. This order was similar to the order made by Gordon J in Hanks.

Takeaways

A shareholder does not have an immediate right to inspect the books of the company. Rather the shareholder will need to satisfy the Court of the requirements outlined above. Careful consideration should be given to:

  1. the purpose for which an application for inspection is made;
  2. the categories of documents sought; and
  3. any ancillary orders which may be appropriate.

HWL Ebsworth can assist shareholders seeking to inspect the books of the company, or companies requiring assistance in responding to requests from shareholders to inspect the books of the company.

This article was written by Jonathan Kramersh, Partner, Lachlan Steinfort, Senior Associate, and Nhu-Y Nguyen, Solicitor.


1Section 247A(1) of the Act; Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237 at [36] (Barrett J); Knightswood Nominees Pty Ltd v Sherwin Pastoral Co Ltd (1989) 15 ACLR 151 at 156 (Brooking J); and Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16; (2016) 241 FCR 241 at [22] (Katzmann J, Siopis and Gilmour JJ agreeing).
2Quinlan v Vital Technology Australia Ltd (1987) 5 ACLC 389 at 393.
3Subdivision D of Division 5 of Part 6.5 of the Act has been repealed.

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