A recent decision of the Full Court of the Federal Court of Australia in WA has confirmed the principles that govern the rights of a director (and his or her agent) to access books and records of a company in circumstances where receivers and managers have been appointed.
On 7 February 2013, Justices Dowsett, Foster and Nicholas handed down their decision in Oswal v Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed)  FCAFC 9.
The Appellant, Mr Oswal (Oswal) was a director of Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) (BFPL). On 17 December 2010, ANZ Fiduciary Services Pty Ltd (ANZ) appointed Ian Carson, David McEvoy and Simon Theobold (Receivers) joint and several receivers and managers of BFPL.
Oswal sought orders permitting him (and/or his lawyers and accountants) to inspect and take copies of seven broad categories of books and records of BFPL. He relied upon sections 198F, 290, 421 and 1303 of the Corporations Act 2001 (Cth) (Act) and upon general law principles. Access to the documents was opposed by the Receivers.
At first instance
At first instance, the primary judge reviewed the relevant authorities as to the residual powers and duties of directors of a corporation after the appointment of a receiver in circumstances where a director seeks access to books and records.
Having reviewed the authorities, the primary judge held that the real question to be answered in the circumstances is whether the director, wishing to exercise a power which he otherwise would have, can do so without prejudicing the legitimate interests of the receiver and of his appointor, in the realisation of the assets the subject of the security.
His Honour refused relief in respect of a number of categories of documents because access to those documents would unreasonably interfere with, or threaten, the realisation of assets which were the subject of ANZ’s security.
The decision of the Full Court
Oswal appealed in respect of the categories of documents to which he was refused access.
The Full Court upheld the primary judges findings.
The Court held that under the charge, the Receivers were given complete control of the charged property and fulsome powers to deal with that property in the interests of ANZ. Once the charge became enforceable, it took away from Oswal any right to control the disposition of the charged property which reflects the general principle that once a charge becomes enforceable and a receiver is appointed to the assets and undertaking of the corporation, the directors usually have no ongoing say in the management or disposition of the charged property, including the company’s books and records.
The decision confirms that the appointment of receivers and managers to a company will afford them a clear primacy over the role of directors in respect of the charged property of a company, and accordingly, the common law right of a director to access books and records of a company in such circumstances will be limited where access would interfere with the proper conduct of the receivership.
If you or a client of yours requires advice regarding the rights of a director to access books and records of a company or has other insolvency related questions generally, please contact: