This week’s TGIF considers Navarac Pty Ltd v Carrello [2016] WASC 327, in which the court held that a director was entitled to inspect certain records created by a receiver during the course of the receivership.

BACKGROUND

A court-appointed receiver and manager of Esperance Cattle Company Pty Ltd, a livestock company, applied for various orders to finalise the receivership.

A director of the company sought to inspect certain documents, which she asserted were or might be held by the receiver, to prepare evidence and submissions in opposition to the receiver’s above application.

KEY ISSUES

Given that the director was self-represented and did not identify the basis upon which she asserted an entitlement to inspection, Martin CJ identified the possible sources of such entitlement.

A key issue was the effect which the appointment of a receiver has upon a director’s exercise of his/her rights to inspect the books, financial records and documents of a company under the Corporations Act 2001 (Cth) (Act) and at common law and in particular, with regard to documents prepared by and in the possession of the receiver.

DECISION

Martin CJ ordered the receiver to produce a number of documents sought, including the following documents prepared by the receiver: (i) an internal memorandum relating to his conversation with police concerning missing/stolen assets; (ii) file notes relating to independent management advice the receiver received; and (iii) file notes recording conversations or meetings with a third party.

Sources of a right to inspection

The court held that the director had rights to inspect the books and financial records of the company under sections 198F, 290 and 421 of the Act and at common law.

In summary:

  • Section 198F - 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 the director is a party.

  • Section 290 - a director has a right of access to the financial records of the company at all reasonable times.

  • Section 421 - any director may, unless the Court otherwise orders, inspect financial records kept by a managing controller of property of the company (which included the receiver) of all transactions that the managing controller enters into as a managing controller.

Scope of common law right of inspection

The court noted that the common law right of inspection applies to documents in the possession of the company (which includes documents created or received by the receivers in the course of acting for the company), as opposed to documents prepared by the receiver for his own benefit or protection and which are held by him in that capacity.

The court found that the relevant documents (a memorandum and file notes) recorded advice related to the management of the company’s assets or were prepared as records of the receiver’s actions as agent for the company. For these reasons, Martin CJ considered that these documents belonged to the company (and not the receiver) and were part of the company’s books and records, so ordered the receiver to produce them for inspection.

The effect of the appointment of the Receiver

The court held that the fact that a receiver had been appointed to the property of the company did not, of itself, impinge upon the director’s rights of inspection under the Act and at common law. There must be evidence that granting the right of inspection would impede the proper exercise of a receiver’s functions or prejudice the position of any secured creditor. There was no such evidence in this case.

COMMENT

This case illustrates the scope of a director’s right to inspection of documents prepared by and in the possession of a receiver.

The appointment of a receiver does not, of itself, impinge a director’s rights under the Actand at common law to inspect the books, financial records and documents of a company.

However, a receiver would be justified in refusing to grant access to documents where to do so would impede the proper exercise of his functions or prejudice the position of any secured creditor.