If you are a shareholder of an Australian company, you may want to know if you have a right to access or inspect a company’s books in which you own shares. Shareholders do not have an automatic right to inspect company books and records. However, this article sets out some steps you can take to obtain access to a company’s books as a shareholder.
What Are Company ‘Books’?
A company’s ‘books’ have a defined meaning in the Corporations Act 2001 (Cth) (Corporations Act).
The term is broadly defined to mean:
- a register;
- any other record of information;
- financial reports or financial records, however compiled, recorded or stored; and
- any other document.
Methods to Obtain Access to a Company’s Books
1. Shareholders’ Agreement and Company Constitution
A shareholders’ agreement is a binding contract between the shareholders of a company. Further, it governs the relationship between its shareholders and directors. A company does not need to have a shareholders’ agreement in place. However, it is beneficial.
If the company has a shareholders’ agreement or a Constitution in place, they may state what documents (if any) you have a right to access or inspect as a shareholder. Therefore, you should check these documents’ terms to see if they allow you to access or inspect books as a shareholder.
2. Seek Approval From the Company or the Directors
You may be able to seek and obtain approval to access company books directly from the company or its directors. Under the Corporations Act, directors of a company, or the company, may authorise you to inspect its books by passing a resolution at a general meeting of its shareholders.
However, obtaining approval in this way may be difficult for several reasons. For example, the other shareholders or the directors may be concerned that your access could be critical of their actions.
3. Make an Application to the Court
Suppose you cannot obtain access to company books informally. Then, you can seek a court order compelling the company to provide you with access to inspect its books.
A person authorised by the court to inspect a company’s books may also make copies unless the court orders otherwise.
With this said, it is ultimately a decision for the court as to whether or not it will make such an order. The court may only make an order if it is satisfied that the shareholder is acting in ‘good faith‘ and the inspection will be made for a ‘proper purpose’.
If you are a company director, complying with directors’ duties are core to adhering to corporate governance laws.
This guide will help you understand the directors’ duties that apply to you within the Australian corporate law framework.
These requirements of ‘good faith’ and ‘proper purpose’ are not separate and you should consider them together. However, the shareholder seeking access must prove these requirements objectively instead of relying on their subjective belief. In any event, whether these requirements are fulfilled will depend on the specific facts of the case.
Some facts that the court may consider in coming to a decision can include, for example:
- the period that the shareholder has held shares in the company;
- the extent and value of the shareholder’s interest in the company;
- and other factors the court may deem relevant.
Examples
Below are two examples of situations where courts have made access orders for shareholders.
Example 1:
A shareholder applied to the court to obtain a company’s books because he was concerned about the legitimacy of certain transactions entered into by the company.
The court found that the shareholder was acting in good faith and for a proper purpose because he was investigating transactions that raised genuine concerns. The concerns included that the company was shifting assets, which was adverse to the shareholder’s interest.
Example 2:
A shareholder made an application to the court to access particular company books as he wished to investigate alleged director breaches. The shareholder only held 0.00005% of the company’s issued shares, and the current value of his shareholding was minor.
Notwithstanding this, the court found that the shareholder had genuine concerns about director breaches and therefore acted in good faith and for a proper purpose.
Key Takeaways
There are several avenues you should consider if you are a shareholder seeking access to company books. If you need assistance with your options, 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
Per the Corporations Act, a company’s ‘books’ mean: a register, any other record of information, financial reports or financial records, however compiled, recorded or stored and any other document.
It is a document that governs the management of a company. A company that does not have a Constitution is governed by the default governance rules under the Corporations Act.
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