Director’s absolute right to access company’s financial records

A director of a company has both a common law and statutory right to access all “financial records” “at all reasonable times” in order to discharge their fiduciary duties.  The law is clear the right is absolute and unequivocal.

The statutory rights of a director to access financial records are contained in the following sections of the Corporations Act 2001 (Cth) (Act):

Section 290(1) provides:

• A director of a company, registered scheme or disclosing entity has a right of access to the financial records at all reasonable times.

 Section 290(2) provides that a director can make an application to Court to authorise a person to inspect the financial records on the director’s behalf.

Case law interpreting section 290 of the Act

One of the common issues in matters involving shareholder oppression is where access to the company’s financial records is restricted or limited.  Read our article on early warning signs of shareholder oppression.  For this reason, it is rare that an application to Court is made purely based solely on section 290.

In Hammond v Quayeyeware Pty Ltd [2021] FCA 293 (Hammond v Quayeyeware) an application was made by Linda Hammond (Hammond) seeking declarations that she be given  to access the company’s financial records.  A secondary issue was whether Hammond was able to obtain access to company’s invoices and retainer agreements relating to prior proceedings that may have been subject to legal professional privilege.

A useful analysis of the right of access to company documents was conducted by Banks-Smith J at paragraph 113 of Hammond v Quayeyeware where there was a discussion of:

• the directors statutory right of access as contained in section 290;
• the meaning of financial records as defined in section 9; and
• section 1303 of the Act that gives the Court the power to compel compliance with section 290.

Relevantly two (2) competing principles were stated as follows:

“It is not necessary for a director to itemise and request particular documents by a particular name: ‘What should happen, when documents are demanded by a director, is that the gate is opened wide and the director has full and unfettered access at all reasonable times’ (at [23])”^[1]; and

“[7] The Applicant is clearly entitled to access and to inspect the records of the companies, but in a way that is reasonable in all of the circumstances, and also bearing in mind the context in which the access and inspection is being carried out”.^[2]

The issue for the Court in exercising its discretion is to balance the two (2) competing tensions of the absolute right to information versus the reasonableness in the circumstances.

Factors against the Court exercising its discretion include:

“where it is proved that a director is acting or is about to act in breach of his fiduciary duty to the company and intends to aid that process by inspecting the books, then his right to inspection disappears” (at 163).

In the New Zealand case of Berlei Hestia (NZ) Ltd v Fernyhough [1980] 2 NZLR 150, Mahon J considered the statutory right of directors and concluded that the right of access is not a right of a director, but rather a power to be exercised when necessary.  However, if that power was corrupted, Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; (1923) 33 CLR 199 at 219 (Isaacs J) the onus of establishing that the power or discretion has been used for an improper purpose lies on the person who asserts the right to it.

This NZ judgment was endorsed by Finkelstein J in 2004 with respect to s290 of the Corporations Act in the case of Tai-Ao Aluminium (Australia) Pty Ltd v Cordukes [2004] FCA 1488 at [2].

Takeaways about directors right to financial records

Directors generally have the statutory ‘power’ to access all financial records of a company on request.  They do not have to provide reasons or any justification, particularly where there is no suggestion that the documents will be used for an improper purpose.  For further information about director’s right information, see the following video:

Links and further references about shareholder oppression

Legislation

Corporation Act 2001 (Cth)

Cases

Australian Metropolitan Life Assurance Co Ltd v Ure [1923] HCA 29; (1923) 33 CLR 199

Berlei Hestia (NZ) Ltd v Fernyhough [1980] 2 NZLR 150

Hammond v Quayeyeware Pty Ltd [2021] FCA 293 (30 March 2021)

Tai-Ao Aluminium (Australia) Pty Ltd v Cordukes [2004] FCA 1488

Further information about shareholder oppression

If you need advice on a director’s right to information, or shareholder oppression, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Banks-Smith J in Hammond v Quayeyeware Pty Ltd [2021] FCA 293 at para 117, citing Fox v Gadsden Pty Ltd [2003] NSWSC 748.

[2] Banks-Smith J in Hammond v Quayeyeware Pty Ltd [2021] FCA 293 at para 118, citing Hawksford v Hawksford [2005] NSWSC 1316 per Palmer J.

---

Related insights about shareholder oppression