[2002] SASC 344
Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (subject to deed of company arrangement) (2016) 116 ACSR 353
[2016] FCAFC 16
Satz v ACN 069 808 957 Pty Ltd [2010] NSWSC 365
Category: Principal judgment
Parties: Tony Palasovski (Plaintiff)
Source
Original judgment source is linked above.
Catchwords
[2002] SASC 344
Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (subject to deed of company arrangement) (2016) 116 ACSR 353[2016] FCAFC 16
Satz v ACN 069 808 957 Pty Ltd [2010] NSWSC 365
Category: Principal judgment
Parties: Tony Palasovski (Plaintiff)
Judgment (3 paragraphs)
[1]
No appearance for the Defendant.
File Number(s): 2019/322265
[2]
EX TEMPORE Judgment
HER HONOUR: This is an application under section 247A of the Corporations Act 2001 (Cth) for an order to inspect the books of Orinoco Gold Limited (subject to Deed of Company Arrangement). The applicant, Tony Palasovski, is a shareholder of Orinoco Gold. He, until recently, owned 17 million shares in the company but has in recent times substantially reduced his shareholding so that he now only holds 10,000 shares. He appears to have retained these shares for the purposes of being able to avail himself of his right as a shareholder to inspect the books and records of the company under the Corporations Act.
Administrators were appointed to the company in April 2019 and the company resolved to enter into a Deed of Company Arrangement (DOCA) in May 2019. On 23 May 2019, the plaintiff requested books and records of the company and the administrators declined absent a court order. These proceedings were commenced on 15 October 2019 and it is apparent from the evidence of Mr Palasovski and the submissions made in the matter before the court on the last occasion, being 11 November 2019, that Mr Palasovski wishes to inspect the books and records, primarily for the purposes of ascertaining whether a class action may be brought against Orinoco Gold.
The principles governing such applications are not controversial. Section 247A(1) of the Corporations Act provides:
Order for inspection of books of company or registered scheme
(1) On application by a member of a company or registered scheme, the Court may make an order:
(a) authorising the applicant to inspect books of the company or scheme; or
(b) authorising another person (whether a member or not) to inspect books of the company or scheme on the applicant's behalf.
The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.
Further, section 247B provides:
Ancillary orders
If the Court makes an order under section 247A, the Court may make any other orders it considers appropriate, including either or both of the following:
(a) an order limiting the use that a person who inspects books may make of information obtained during the inspection;
(b) an order limiting the right of a person who inspects books to make copies in accordance with subsection 247A(2).
Katzmann J, with whom Siopis and Gilmour JJ agreed, considered the requirements of the section in Mesa Minerals Ltd v Mighty River International Ltd (2016) 111 ACSR 289; [2016] FCAFC 16 at [22] by reference to the decision of Debelle J in Acehill Investments Pty Ltd v Incitec Ltd (2002) 233 LSJS 97; [2002] SASC 344, which I will not recite here. Relevant for present purposes is that "good faith" and "proper purpose" together form a composite notion which may be satisfied where "the plaintiff could reasonably take the view that its investment in the company may be at risk and there is a "case for investigation": In the matter of Sirrah Pty Limited [2017] NSWSC 1683 at [23], citing London City Equities Ltd v Penrice Soda Holdings Ltd (2011) 84 ACSR 573; [2011] FCA 674. The requirements were put succinctly by Brereton J in In the matter of Tolco Pty Limited [2016] NSWSC 1069 at [16]:
Those propositions embody, as it seems to me, three main considerations: first, that the applicant must demonstrate that it is acting in good faith and that the inspection is to be made for a proper purpose, which is judged objectively; secondly, that the procedure is not intended to be in the nature of discovery; and thirdly, that the remedy is in any event discretionary.
On the second point, his Honour further explained, at [26] (citations omitted):
… The function of an order under s 247A is to authorise a shareholder to inspect a company's books - not to require a company to undertake an exercise of discovery. Authority to inspect books of a company does not involve imposing on the company an obligation to examine its own books to form a judgment whether particular documents do or do not relate to a particular issue of subject matter. Orders under s 247A should be framed so as to identify particular books or classes of books … for defined periods where appropriate, rather than issues or topics to which documents may relate - since the latter impermissibly requires the company to undertake an exercise in the nature of discovery. …
Particular issues arise when a company is in administration, or, as here, subject to a DOCA. First, leave must be granted to proceed with the application under section 444E, to which the deed administrators have consented in this case: Mehan v Arrium Limited (formerly Onesteel Limited) [2016] NSWSC 1680. There is also a provision in the DOCA in the same terms as that in Satz v ACN 069 808 957 Pty Ltd [2010] NSWSC 365, that shareholders may not institute proceedings without the leave of the Court, which Barrett J held, in that case, extends to proceedings brought under section 247A. In those circumstances, it is appropriate that the Court exercise its discretion in favour of a grant of leave, where the cost of the application itself will be minimal to the administrators, who do not seek to be heard, and where the nature of the application is not brought against the company's property such that it does not affect any party's entitlement to dividends under the DOCA.
Second, it is relevant to a grant of leave under section 440D or section 444E whether administrators will be unreasonably distracted from the performance of their statutory duties: Mehan v Arrium at [12] and [14] and Australian Competition and Consumer Commission v Phoenix Institute of Australia Pty Ltd (subject to deed of company arrangement) (2016) 116 ACSR 353; [2016] FCA 1246 at [83] ff. I consider that the same consideration should inform my discretion in an application under section 247A, since it is clear that an administrator with limited funds and time to spend on this particular company will be impeded in their work if faced with an onerous order for inspection of documents.
The categories of documents originally sought by Mr Palasovski, as canvassed on the last occasion, were voluminous, comprising some eight pages of single line spaced categories which, when added up, were over 100 categories of documents. Perhaps unsurprisingly, the deed administrators were concerned, in their letter of 8 November 2019, as to the burden which this placed upon them and the distraction which it posed from attending to their tasks as deed administrators, in particular, their efforts to recapitalise the company. Concern was also expressed about the confidentiality of the documents and whether, if those confidentiality obligations were breached, the recapitalisation may be imperilled or the administrators may be considered to have breached confidentiality obligations to third parties. The administrators, having very little funding to attend to their task as deed administrators, also expressed concerns about their ability to spend time and money meeting the plaintiff's request. The matter was stood over to today to give the plaintiff the opportunity to discuss the practicalities of his request with the administrators, including providing confidentiality undertakings, reducing the scope of his request and making suitable arrangements to ensure that the administrators' costs of attending to the request were paid.
A much refined list of documents has been presented to the Court today together with a proposed confidentiality undertaking, an estimate of the administrators' likely fees and a further letter from the administrators. The administrators again, whilst not objecting to leave being granted to the plaintiff to bring this application, object to being distracted from their tasks as the administrators to undertake the burden of meeting this request together with concerns already expressed about confidentiality obligations and the potential ramifications which disclosure of any confidential material may have on their efforts to recapitalise the company.
Although it is said that there are only 12 boxes of documents and some Dropbox links, experience suggests that Dropbox links can generally be linked to potentially vast quantities of material and I am not persuaded that the task which has been presented to the administrators is of small scope. It will take them a lot of time and money to deal with it. The plaintiff's counsel was not able to point to any particular urgency in accessing the documents before the sunset date under the DOCA, being 22 February 2020, save for a wish to "get out of the starting blocks". I assume that means - in respect of the proposed class action - reviewing the material to see whether such an action ought to be pursued.
I am concerned, having regard to the authorities which govern requests such as these, that the deed administrators not be distracted from their tasks. Having regard to the evidence before the Court, and in the absence of any assistance from the deed administrators as to whether the plaintiff's request is in good faith and for a proper purpose, with some hesitation I am prepared to order that the plaintiff have access to the books and records but only once the sunset date has passed and then only on terms of provision of confidentiality undertakings and pre-payment of the administrators' estimated of costs of attending to this request, together with an ability to seek orders for further payment of the administrators' costs if the estimate is exceeded.
In these circumstances, I make the following orders:
1. Pursuant to section 444E(3) of the Corporations Act 2001 (Cth), grant leave to the plaintiff to begin and proceed with this application under section 247A of the Corporations Act 2001 (Cth) against Orinoco Gold Limited (subject to Deed of Company Arrangement).
2. On the provision of:
1. a signed confidentiality undertaking in the form annexed to these orders and marked "A"; and
2. the amount of $7,550 in cleared funds,
to the Deed Administrators of Orinoco Gold Limited, the defendants to provide access to the documents in Annexure "B" to these orders, such access not before 22 February 2020.
1. Liberty to the parties to apply on two days' notice, including in respect of the provision of further funds to the Deed Administrator in excess of Order 2(b).
2. Stand the matter over for directions in the Corporations List on 16 March 2020.
[3]
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Decision last updated: 11 December 2019