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Directors of a company generally seek access to the company’s books to assist them in performing their duties or defending themselves in legal proceedings. A director of a company has a general right to access information in its possession in a timely manner to discharge their duties. However, when a director becomes involved in personal litigation, there is a question as to a director’s ability to access company books. If you are a director in a similar situation or require access to a company’s books for another reason, this article can assist you in understanding your rights.  

What Are Company ‘Books’?

The ‘books’ of a company are broadly defined in the Corporations Act 2001 (Cth) (Corporations Act) to mean: 

  • a register; and 
  • any other record of information; and
  • financial reports or financial records, however compiled, recorded or stored; and
  • any other document.

The Right to Inspect Books and Financial Records

Constitution

Separately to the rights given by legislation, a director may have a right to access and inspect specific documents under the company’s Constitution

It is important to initially check the terms of the company’s Constitution. Doing so can confirm any specific access or inspection rights you may have as a current director. 

Company Books 

If there is no specific right under the company’s Constitution for a director to access and inspect certain documents, you may need to consider your rights under the Corporations Act.

Section 198F(1) of the Corporations Act gives currently serving directors the right to inspect the company’s books (other than its financial records) at all reasonable times for the purposes of a legal proceeding to which they:

  • are a party; or 
  • wish to bring against others; or 
  • believe may be brought against them.

This right also allows directors to make copies of the books for the purpose of the legal proceedings in question. However, it does not allow a director to appoint an agent to inspect the books on their behalf. 

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Financial Records 

Under section 290 of the Corporations Act, a current director has a right to access the ‘financial records’ of a company at all reasonable times. The Corporations Act defines ‘financial records’ narrowly as: 

  • invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers;
  • documents of prime entry; and
  • working papers and other documents needed to explain:
    • the methods by which financial statements are made up; and
    • adjustments to be made in preparing financial statements.

A director may apply for a court order to allow another person (an agent) to inspect and make copies of the financial records on their behalf. However, the court must be satisfied that the director is acting in good faith and the inspection is to be made for a proper purpose.

Former Directors 

Former directors have the right to inspect the company’s books (including financial records) at all reasonable times for the purposes of a legal proceeding to which they: 

  • are a party;
  • wish to bring against others; or 
  • believe may be brought against them.

A former director’s right to inspect the company books continues for seven years after the person ceased to be a director of the company.

Compliance 

In the first instance, a current or former director can informally request access to inspect company books and records. For example, by an oral or written request to: 

  • another director;
  • the chairman; 
  • the company secretary; or 
  • the CEO.

Under section 198F of the Corporations Act, if a director makes a valid request to access company books, the company must allow them to exercise those rights. 

Suppose the company refuses to permit the director to inspect any books or provide a copy. In that case, the director may seek a court order compelling the company to: 

  • allow immediate inspection of the book; or 
  • supply a copy of the book. 

However, the court will consider various factors before ordering such compliance.

Deed of Access and Indemnity

The company and its directors may also agree to extend this access period by entering into appropriate deeds of access (also known as deeds of access and indemnity). 

Under the deed, the company usually agrees to: 

  • provide the director with access to company books and records;
  • indemnify the director against liabilities and legal costs that arise from being a director of the company; and 
  • obtain directors and officers insurance from a reputable insurer.

Shareholder Rights

If a director holds shares in the company, they may have certain rights or methods available to them as a shareholder to access company books and records.

Key Takeaways 

Directors have a right to inspect financial records and books of a company both during their term of directorship and for up to seven years after they cease their directorship. Where directors make a valid request to inspect, the company should comply with the request. Failure to do so may result in a costly court case that it could have avoided.

Various factors are considered to determine whether a director has a valid basis for requesting to inspect and whether a company should comply with such a request. Therefore, each situation is different and you should consider it carefully.

If you require assistance with obtaining access to company books and records, LegalVision’s dispute resolution lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions

What are company ‘books’?

A company’s ‘books’ mean a register, any other record of information, financial reports or financial records and any other document.

Do former directors have a right to inspect the company’s books?

A director’s right to inspect the company’s books (including financial records) lasts for seven years after they cease to be a director of the company. They can do so for the purposes of a legal proceeding to which they are a party, wish to bring against others or believe may be brought against them. 

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