A company holds a wide variety of documents, such as financial reports, directors’ resolutions, the company constitution and sustainability statements. From time-to-time, shareholders may request access to company documents as part of an investigation by the shareholder into certain actions or aspects of the company. Whatever legal rights a shareholder claims to possess, you should carefully consider your position before handing over any documents. The rights to access company documents may be established under a shareholder’s agreement or a company constitution. In the absence of such documents these rights are available pursuant to the Corporations Act 2001 (Cth) (Corporations Act).
What Documents can be Accessed?
Section 9 of the Corporations Act defines this range of documents as ‘books’, which include the following:
- A register;
- Any other record of information;
- Financial reports or financial records, however compiled, recorded or stored; and
- Sustainability reports or sustainability records, however compiled, recorded or stored; and
A document.
A shareholder’s rights attached to the access of these documents may vary depending upon the specific type of document sought.
Right to Access ‘Registers’
A shareholder has a statutory right to inspect registers without a fee pursuant to section 173 of the Corporations Act. For a shareholder to gain access to a register, an application must be made in the prescribed form, the company must then provide a copy of the requested register within 7 days of this application. Registers include the following:
- The register of members, which is arguably the most important statutory register kept by companies as it contains information on past and present shareholders, providing a continuous record of ownership since the company’s incorporation;
- The register of option holders; and
- The register of debenture holders.
Right to Access Current Financial Reports
Shareholders seeking access to financial reports and directors’ reports for a financial year may provide a shareholder’s direction pursuant to section 293 of the Corporations Act. This allows shareholders with at least 5% of the votes in a small proprietary company to give a company directions to prepare a financial or directors’ report for a financial year and send them to all shareholders. Shareholders can direct that the financial report must comply with some or all accounting standards and that the financial report be audited. This direction must be made no later than 12 months after the end of the financial year concerned. This does not give shareholders the right to seek financial reports for earlier financial years.
Request to Inspect ‘Books’
A shareholder seeking to access a company’s books will need to apply to the Court pursuant to section 247A of the Corporations Act.
The books inspected should be relevant to the purpose for which the inspection is sought. In Engel v National Biodiesel Ltd [2015] FCA 1114 the Federal Court decided that in granting an order for inspection under this section, it is not appropriate for the Court to allow for the wholesale and general inspection of books.
When to Refuse Access to Books
There is an important qualification to the access right, which is that the application must be brought in good faith and for a proper purpose. Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115 was cited with approval in Mesa Minerals Ltd v Mighty River International Ltd (2016) 241 FCR and set out that a ‘proper purpose’ means a purpose connected with the proper exercise of the rights of a shareholder as a shareholder and not, for example as a litigant in proceedings against the company or as a bidder under a takeover scheme.
In Rasley (Singapore) Pte Ltd v Financial & Energy Exchange Ltd [2020] FCA 1462 Jackson Jidentified examples where the purpose of a request for access to books was unrelated to the applicant’s status as a shareholder, and which therefore meant the application was not made for a proper purpose. These examples included:
- Idle curiosity;
- Harassment or blackmail; and
- Sharing confidential information with a competitor of the company.
Key Takeaways
Shareholders have a right to access a company’s registers upon request and without charge. Shareholders with at least 5% votes in a small proprietary company also have a right to direct the company to provide them with financial and directors reports for the period no longer than 12-months before the application was made.
When a shareholder requests access to a company’s ‘books’ the following considerations should be made before releasing any documents:
- The prescribed application must be made to the Court under section 247A of the Corporations Act.
- The documents requested for inspection must match the purpose of the request.
- The request must be made in good faith and for a proper purpose relating to the applicant’s status as a shareholder, and not for some other ulterior motive.