This case highlights the pre-eminent position of receivers over directors in realising assets the subject of the receivership. Receivers will be justified in refusing a director access to the books and records of a company where such access would impede the receiver in the proper exercise of his or her functions or interfere prejudicially with the receiver’s role of realising the assets, and there is no basis for thinking that the receivership is being conducted improperly.
At first instance, Mr Oswal (a director of Burrup Fertilisers Pty Limited (Receivers and Managers Appointed) (Burrup)) was successful in gaining access to some (but not all) of seven categories of books and records of Burrup which he requested under the Corporations Act 2001 (Cth) (Corporations Act) and general law principles.
On appeal, Mr Oswal sought access to most of the remaining categories of books and records of Burrup, all of which were created or received after the appointment of receivers and managers over all of the assets and undertakings of Burrup and all of which concerned actions taken or which might have been taken by the receivers in respect of the assets the subject of the receivership. Mr Oswal’s stated reason for access was that he wanted to ensure that any sale of assets was conducted in a proper manner and for market value. Mr Oswal’s claims on appeal were confined to general law principles and he did not challenge the primary judge’s findings in relation to access rights under the Corporations Act.
The Court upheld the following principles which were relied on by the primary judge:
- a director has a common law right to inspect and copy documents of a company (personally or by agent) so that he or she can properly perform their duties;
- the court has residual discretion whether or not to order inspection but will generally grant access provided that there is no misuse of power;
- a receiver is entitled to possession of the books and records of the company by virtue of the proprietary interest of the debenture holder; and
- a receiver will be justified in refusing access where to do so would impede the receiver in the proper exercise of his or her functions or will impinge prejudicially on the position of the debenture holder or the assets the subject of the charge.
The Court upheld the primary judge’s decision that to allow access to documents which concerned potential sales by Burrup of its assets would likely result in undue interference with the performance of the receivership in circumstances where there was no basis for thinking that the receivership was being conducted improperly, and Mr Oswal’s obvious desire was to second guess or keep an eye on the receivers.
See the case.