Corporation Act - Application for leave to inspect books of company to investigate solvency - Turns on own facts

AG Care Aviation Pty Ltd v Outback Air Pty Ltd [1999] VSC 94

Cescastle Pty Ltd v Renak Holdings Ltd (1991) 6 ACSR 115

Lucy v Prescribing Biochemists Pty Ltd [2000] NSWSC 1137

Re Augold NL (1987) 5 ACLC 286

Re Safetycare Australia Pty Ltd: Disney Davidson Holdings Pty Ltd v Safetycare Australia Pty Ltd [1999] VSC 321

1 MASTER SANDERSON: This is an application brought under s 247A of the Corporations Act. The section allows an application to be brought by a member of a company or by a person who qualifies under s 247A(3) of the Act for an order allowing inspection of a company's books. The requirement is that the application be made in good faith and for a proper purpose.

2 I recently had reason to consider the section in Caveat Pty Ltd v Baillie [2000] WASC 83. In those reasons I referred to what was said by Rowland J in the decision of Biala Pty Ltd v Mallina Holdings Ltd (1989) 7 ACLC 894. His Honour there set out a series of principles which, with respect, seem to me to govern the approach to applications such as this. The question of when an application was made in good faith was considered by Brooking J in Intercapital Holdings Ltd v MEH Ltd (1988) 6 ACLC 1068 and his Honour said:

"Whether a reasonable shareholder could take the view that his investment in the company may be adversely affected by the transaction and could take the view that he wished to investigate the question whether he should try to endeavour to cause legal proceedings to be taken whereby the company may, in appropriate circumstances, recover damages or compensation for wrongful acts."

3 I quote that passage because it does seem that in most, although certainly in not all instances, applications under s 247A are brought when a shareholder is looking to investigate the conduct of the actions of a company with a view to perhaps taking action in the company's name or to taking action against the directors for the way that they are conducting the affairs of the company.

4 The section does not allow a disgruntled shareholder to simply obtain an order under s 247A because they do not agree with the way the company is being managed. That was made plain by Rowland J in the Biala decision.

5 In this case the avowed purpose of the application is to ascertain whether or not the company, that is the defendant, is solvent. In my view that is not a proper purpose within the meaning of s 247A. I appreciate that s 247A does not by its terms qualify the rights of a shareholder in any way. But I think it must of necessity be clear that there are certain circumstances when it can be said that a purpose is improper. One good example is the decision of Warren J in the Victorian Court of Appeal in Czerwinski v Syrena Royal Pty Ltd (No 1). [2000] VSC 125.

6 There what the applicant was trying to do was to avoid a claim for privilege which had been made in other proceedings by a corporation. It surely cannot be a proper purpose for an order for inspection of the books to be sought in such circumstances; and that was the decision his Honour reached.

7 If an application by a member is to be made to wind up a company under s 459P, then there are requirements that must be met. Essentially, the member must establish a prima facie case that the company is insolvent: s 459P(3). In my view, to attempt to use s 247A to establish the solvency or otherwise of a corporation and thereafter to use, potentially at least, s 459P to wind up the company is to use s 247A for an improper purpose.

8 It is interesting that one of the qualifications for bringing an application under s 247A(3) is that an application is possible under s 237. That, of course, is the section which empowers a shareholder to take proceedings in the name of the company.

9 I do not necessarily suggest that it is conclusive that when a member intends to rely on a provision of the Corporations Act other than s 237 they are precluded from relying on s 247A. It must depend, I think, on the purpose for which the inspection is being sought. But I am satisfied in the circumstances of this case where the avowed purpose is to ascertain the solvency of the company, that that is not a proper purpose and the application is not made in good faith.

10 Having reached that conclusion, it is probably not necessary for me to say anything further. However, I would make the point that there appears to have been a number of separate actions initiated between these protagonists. While it is always dangerous to read too much into the way in which the parties attempt to resort to the courts to settle their differences, I think that the fact of those separate proceedings, taken together with the evidence which has been filed on behalf of the defendant in relation to the conduct of Mr Martino, does raise a further question about the good faith of the applicant.

11 I make no firm findings on that point. I simply refer to the evidence and the fact of the proceedings and say that there is, I think, a question about the good faith of the plaintiff in these proceedings. However, the essential point is that I am not satisfied that the application is brought for a proper purpose and on that basis I would dismiss the plaintiff's application. The plaintiff should pay the defendant's costs, including the reserved costs.