Can a shareholder inspect a company’s books?

Quick summary of a shareholder’s right to inspect books

Yes, with permission or a court order. Under section 247A of the Corporations Act 2001 (Cth), a member can ask the Court to authorise inspection of the company’s books. The Court can only make the order if it is satisfied that the member is acting in good faith and the inspection is for a proper purpose.

——— The right

Does a shareholder have a right to inspect the company’s books?

Not automatically. Apart from registers, a shareholder can inspect the company’s books only if the directors or a general meeting allow it, or the Court orders it under section 247A.

A company must allow anyone to inspect the registers kept under Chapter 2C, such as the register of members, and members can do so without charge.^[2] Beyond that, the directors, or the company by resolution at a general meeting, may authorise a member to inspect the books. This is a replaceable rule, so the company’s constitution may change it.^[3]

If the company will not agree, a member can apply to the Court. The Court may authorise the member, or another person on the member’s behalf, to inspect the books, and the person inspecting may make copies unless the Court orders otherwise.^[4]

“Books” is defined broadly. It includes a register, any other record of information, financial reports or records, sustainability reports or records, and any document.^[5]

A separate limb lets a person who has, seeks or is eligible to seek leave to bring a derivative action on the company’s behalf apply for inspection, for a purpose connected with that action.^[6]

In short, inspection is a privilege the company or the Court grants, not a right every shareholder has.

——— The test

What do good faith and proper purpose mean?

They mean the shareholder genuinely holds a purpose that relates to its rights as a shareholder, and the Court asks both whether that purpose is legitimate and whether the shareholder is really pursuing it.

The applicant bears the onus of establishing that it is acting in good faith and for a proper purpose.^[7] The courts treat the phrase as a composite test rather than two separate elements, and the proper purpose must be the applicant’s dominant purpose. It must also relate to each category of documents sought.^[8]

In Enares, the Full Court said the cases are generally concerned with two questions: whether the asserted purpose is legitimate, given the relationship between the shareholder, the company and its directors; and whether the applicant has proved, by admissible evidence, that it actually has that purpose.^[9]

A proper purpose must relate to the applicant’s rights as a shareholder. In Ingram, inspection was refused because the shareholders wanted documents for claims about conduct that had induced them to invest, which were claims as investors, not as shareholders.^[10]

Investigating whether there has been a breach of directors’ duties or oppressive conduct is “self-evidently” a proper purpose, and so is a desire to protect the shareholder’s investment.^[11] But mere dissatisfaction with the board’s management decisions is not enough. Hostility towards the directors does not by itself rule out a proper purpose.^[12]

In short, the purpose must be a shareholder’s purpose, genuinely held, and directed at something the shareholder is entitled to investigate.

——— Evidence

How much evidence does a shareholder need?

Enough to show a real “case for investigation”: an objective basis for the concern, not proof that something has gone wrong.

Without a reasonable basis or foundation for the asserted purpose, an application cannot be made in good faith, however strongly the applicant believes in it. The rule excludes shareholders who simply want to check that nothing has gone wrong.^[13]

More than curiosity or general suspicion of management is required. The applicant must at least be able to articulate a basis on which it might be found that illegal, improper or otherwise undesirable conduct has occurred.^[14] The shareholder does not have to prove the breach, and the Court does not decide it, but there must be some tangible support for the concern beyond mere belief or assertion.^[15]

In Style, inspection was ordered because the shareholder had raised specific financial issues that the company had not answered; they were “substantive and not fanciful” and not “artificial, specious or contrived”.^[16] A concern that fails that standard cannot support an application, even if it is genuinely held.^[17]

The size and history of the holding also matter. A shareholder with a significant holding held for some time will more easily discharge the onus than one who has recently acquired a token holding.^[18]

In short, the shareholder needs evidence that makes the concern real, but not evidence that proves the case.

——— The cases

Why did the shareholder fail in Enares when others succeeded?

Because its concerns had no objective foundation. The shareholders who succeeded pointed to specific, unanswered issues.

In Enares, the company’s senior debt and subordinated notes were about to fall due. The shareholder wanted the board to raise money through a rights issue it might underwrite, but the board refinanced with new notes. By the hearing, the shareholder said it was concerned the directors had breached their duties or acted oppressively, and about the value of its shares. The Full Court held that the board had tried equity raisings without success, the shareholder’s proposal was conditional and indicative only, and there was no foundation for the alleged concerns.^[19] Its concern about protecting its investment was put at a high level of generality and depended on the same unfounded concern, so there was no issue to investigate.^[20]

In MJM, a one-third shareholder raised concerns arising from the company’s draft 2023 financial report. The Court accepted that investigating a breach of directors’ duties or oppression was a proper purpose, even though proceedings had already begun, but limited access to documents about the payment of management fees in that financial year.^[21]

In short, a shareholder who can point to a specific, unexplained issue is likely to obtain inspection; one who disagrees with a reasonable board decision is not.

——— Scope

What can be inspected, and on what terms?

Only the books that match the proper purpose, usually identified by category and period, and often on conditions about use and disclosure.

For why the records matter in a dispute, see our article on the importance of evidence in oppression claims.

In short, a narrow, well-defined request is more likely to succeed and more useful when it does.

Frequently asked questions about inspecting company books

Key takeaways about inspecting company books

• Apart from registers, a shareholder needs the directors’, a general meeting’s or the Court’s authorisation to inspect the books.
• The shareholder must prove good faith and a proper purpose connected with its rights as a shareholder.
• There must be an objective case for investigation; curiosity or disagreement with the board is not enough.
• Enares failed for lack of foundation, while shareholders with specific, unanswered concerns have succeeded.
• Orders are limited to targeted categories of books and often carry conditions on use and disclosure.

Need advice about access to a company’s books? Call Dundas Lawyers on 07 3221 0013 or submit an enquiry online.

Links and further references

Legislation

Corporations Act 2001 (Cth) ss 9, 173, 247A, 247B, 247C, 247D

Cases

Enares Pty Limited v Nimble Money Limited [2022] FCAFC 126
Furniss v Blue Sky Alternative Investments Ltd (No 3) [2021] QSC 230
Ingram as trustee for the Ingram Superannuation Fund v Ardent Leisure Ltd [2020] FCA 1302
M.J.M Holdings (NT) Pty Ltd v Australian Marine Contractors [2024] FCA 691
Merim Pty Ltd v Style Ltd [2009] FCA 314
Mesa Minerals Ltd v Mighty River International Ltd [2016] FCAFC 16
Rasley (Singapore) Pte Ltd v Financial & Energy Exchange Ltd [2020] FCA 1462