rulings
53 Category [4(a)]: The applicant by reference to this category requires inspection of advices, correspondence, memoranda, file notes or financial records relating to the potential or actual sale of assets or shares of either BHL or BFPL created or received since 17 December 2010 by the receivers, that is to say, since their appointment.
54 The evidence before the Court shows that there has been no actual sales of assets or shares of either respondent.
55 In those circumstances s 421 of the Corporations Act has no application as it requires, for example by s 421(1)(b), the payment of monies into accounts that the receivers (as "managing controller") receives within three business days of receipt, and, pursuant to s 421(1)(d) to keep financial records, record and explain all transactions that the receivers enter into as receivers. As there have been no sales of assets, there are no such records.
56 The applicant seeks an order for inspection under the general law right of inspection of a director for the purposes of ensuring the best interests of the company. However, despite the undoubted existence of this general law right of inspection, if there have been no actual sales then there are no records to inspect and an order would be redundant and unnecessary.
57 That, however, leaves the question of inspection of documents as described in relation to the potential sale of assets or shares by the receivers.
58 Given that the pre-eminent role of the receivers is to realise the assets on behalf of the debenture holder, I consider the Court should not facilitate inspection that may threaten the proper administration of the receivership or imperil the assets the subject of the charge by which the receivers have been appointed.
59 On behalf of the applicant it is submitted that there is a philosophical debate about the continued role a director in the position of the applicant may have in relation to the administration of a company which is in receivership. In my view, quite reasonably, senior counsel for the applicant submits that the relevant principle is not and cannot be that the director cannot do anything unless the receiver says so. The directors in this respect should not be considered paralysed. It may also be accepted, in my view, that there are some things that a director may reasonably assume a receiver would never do if it were to conflict with the interests of their appointor.
60 In this case, the applicant says in his affidavit sworn 19 April 2011 and filed 4 May 2011, that he believes the receivers are likely to be considering negotiating with one or more of the partners of the Harriet Joint Venture with a view to settling proceedings involving those partners and he is concerned that may entail a negotiation of a higher gas purchase price to be paid under the Gas Sale and Purchase Agreement between BFPL and the "Harriet Gas Sellers" dated 17 December 2001 (GSPA).
61 The applicant says that whilst the negotiations of a higher gas purchase price may immediately benefit the secured creditor in the sense of making it easier to negotiate a sale of shares or assets mentioned above, it would be very disadvantageous to BFPL and its shareholders (BHL). In this regard, BFPL currently pays approximately $1.30 per mmBTU for its gas supply, pursuant to the GSPA. The current spot price is in the region of $10 per mmBTU. If the receivers caused BFPL to pay more than the current price, the profitability of BFPL would fall.
62 The applicant says therefore he wishes to know what negotiations are taking place between the receivers and the respective purchasers of the assets and shares in order that he "may take such steps as are necessary to protect the interests of the Second Respondent and its Shareholders".
63 In my view, if the Court were to make an order obliging BFPL to allow inspection of documents falling into this category, there would be a real risk that any potential sale of assets or shares by the respondents could be put at risk. The applicant has made a clear statement that he might need to take such steps as are necessary to protect the interests of BFPL and its shareholders, which plainly include legal proceedings. I consider the inspection proposed raises the real risk of threatening the performance of the receiver. It is not appropriate in the circumstances, in my view, to make an order by way of enforcement of a general law right of inspection of the documents in falling generally into category [4(a)].
64 Category [4(b)]: The applicant by reference to this category seeks inspection of documents created on or after 1 April 2009 relating to entries appearing in BFPL general ledger account 1639 or any other account held in the name of the respondents that records the transactions referred to in the schedule to the statement of claim dated 10 March 2011 in WAD 66 of 2011 in this Court. In seeking orders to this effect, the applicant relies on the general law right of inspection, s 198F and s 290 of the Corporations Act.
65 In proceeding WAD 66 of 2011, McKerracher J in this Court recently ordered discovery of the documents in this precise category be given by today, 3 June 2011.
66 In these circumstances, it seems to me not merely redundant or otiose that the Court in this proceeding should order inspection of the same documents, but more to the point it would be unduly onerous to require the receivers to provide access to the documents on two separate occasions, for two seemingly separate purposes, when the effect of such an order could only be to unreasonably divert human and financial resources available to them from the pre‑eminent responsibility of realising the assets of the company as well as continuing to operate the business of the company.
67 In these circumstances, I would refuse to make any compliance order in respect of category [4(b)] documents under the Corporations Act.
68 I might also observe that the documents in category [4(b)] are primarily designed to assist the applicant in his defence of the proceeding WAD 66 of 2011. In the circumstances of this case, I do not consider that the applicant has a general law right to inspect such documents as the inspection would not obviously arise pursuant to his duties as a director of the company. I do not consider it can therefore be concluded with any degree of confidence in this case that such an inspection would be in the best interests of the company. To that extent, I would distinguish the circumstances of this case from those of On Q Group Limited ACN 009 104 330 v McDougall [2007] VSC 184; (2007) 25 ACLC 910 where Hargrave J at [30] considered it was just as much in the company's interests as it was in the applicant's personal interest that a dispute concerning his indebtedness to the company be resolved on proper grounds as soon as possible, and so a reason for allowing the director access to documents concerning the disputed indebtedness.
69 Further, to the extent that the inspection of category [4(b)] documents has been sought pursuant to s 198F by an agent of the applicant, I rule that the Court is not empowered to permit such access by an agent under that provision.
70 Category [4(c)]: The applicant seeks access to the books and records under this category that were created or contained information created on or after 17 December 2010, namely, the appointment of the receivers, that relate to any payments made on or behalf of the respondents, including correspondence with potential purchasers of assets of the respondents or shares in BHL and documents and correspondence containing or referring to negotiation between BFPL and the receivers and managers concerning the Harriet Joint Venture, any of the individual parties to the Harriet Joint Venture or any agents or employee of such persons, as well as the general ledger, contracts involving purchases or expenditure greater than $50,000 and documents relating to the proceeding CIV 2329 of 2009 in the Surpeme Court of Victoria. The orders are sought pursuant to the general law right of inspection, s 421(2) and s 290 of the Corporations Act.
71 As to category [4(c)(i)] the receivers acknowledge that primary accounting records relating to any payments made by or on behalf of the respondents, constitute "financial records" as defined by the Corporations Act and should be provided. Section 421 and s 290 of the Corporations Act plainly apply in these circumstances. The receivers say, however, that the request for inspection of these primary accounting records should be read in the context of the request for inspection of other documents, principally the general ledger in (c)(iv).
72 So far as the request for inspection of the general ledger in (c)(iv) is concerned, the receivers have already given the applicant access to this, at least up to recent times and are prepared to provide inspection or access of up to date general ledger information.
73 The receivers suggest that once armed with the general ledger information, the applicant might then identify any primary account records relating to particular payments of which he would like additional inspection. In my view, the position taken by the receivers is practical and sensible and will enable the effectual inspection of the relevant documents.
74 I would therefore formally order inspection of the general ledger identified in category [4(c)(iv)] of the proposed orders as well as of category [4(c)(i)] documents that, following such inspection, the applicant requests inspection of.
75 As to the documents in category [4(c)(ii)], being any correspondence with potential purchasers of assets of either BFPL or BHL or the applicant's shares in BHL, I have already ruled on the substance of this request by reference to category [4(a)] above. In general terms I do not consider that documents falling under the description of category [4(c)(ii)] are part of the "financial record" of the company and so are not affected by s 421 of the Corporations Act. Moreover, I do not consider them to be financial records for the purposes of s 290. While a general law right of inspection of such documents exists, for the reasons given above, I consider that the provision of a right of inspection or access to such documents at this point would unreasonably interfere with, or threaten the assets which are the subject of the receivership that the receivers are currently administering as part of their pre‑eminent role in the receivership. For that reason I would not order inspection of documents in this class pursuant to the general law right of inspection.
76 The documents described in category [4(c)(iii)] are more specifically in relation to documents or correspondence containing or referring to negotiations between BFPL or the receivers and managers and any one or more of the Harriet Joint Venture, any of the individual parties to the Harriet Joint Venture and any agent or employee of the person referred to. I have specifically dealt with this category of documents in relation to the request for inspection in relation to category [4(a)] documents and for the same reasons there expressed would refuse to order inspection of such documents. Plainly such documents are not financial records as defined by the Corporations Act and therefore there is no separate right to inspection or access pursuant to s 421 or s 290 of the Corporations Act. For the reasons given above, I would not order inspection of documents in this category under the general law right of inspection.
77 The applicant also seeks inspection or access to the documents in category [4(c)(v)] being contracts involving the purchases or expenditures greater than $50,000 entered into by the receivers by or on behalf of BFPL. While there may be an argument that the contracts themselves do not constitute a "financial record" as defined by the Corporations Act, they are nonetheless documents that might be provided under the general law right of inspection. In my view, there is no particular difficulty confronting the receivers in providing inspection of the documents in this class. Indeed, through counsel the receivers acknowledge that access can be given and they invite the applicant to make a request for any particular documents he requires. Presumably some of these contracts would be disclosed through entries on the general ledger.
78 In my view, it is appropriate to order inspection of the documents described in category [4(c)(v)] on the basis that the receivers first identify the contracts answering the description given by letter to the applicant, or his solicitor, as soon as practicable and then to provide inspection of those documents (or provide copies thereof) that the applicant then requests.
79 By category [4(c)(vi)] the applicant seeks inspection of documents constituting any hard copy or electronic file maintained by the respondents or the receivers in relation to proceedings CIV 2329 of 2009 in the Supreme Court of Western Australia. This proceeding involves the Harriet Joint Venture litigation between the partners to that joint venture.
80 In my view, documents in this category are not financial records for the purposes of s 421 of the Corporations Act. Nor do they fall within the financial records to which s 290 applies. I consider that while the applicant may have a real interest in files relating to the conduct of the joint venture litigation, it is difficult to see, albeit that he has a continuing status of a director of the BFPL, that inspection or access to such documents is required for him to fulfil his duties as a director of BFPL while the receivers are charged with the effective day to day administration of the company and realisation of its assets. For the reasons already expressed above in relation to documents that may fall into the class of documents relating to the potential sale of assets or shares, I also consider that there is a real risk that the enforcement of general law or statutory access rights to such documents at this point may threaten the receivers' administration and imperil the assets that the receivers are pre‑eminently responsible for realising. For these reasons I would refuse to grant inspection or access to documents falling into category [4(c)(vi)].
81 By category [4(c)(vii)] the applicant seeks inspection of or access to any documents, including correspondence relating to the determination of the off‑take reference price payable pursuant to an agreement dated 13 December 2002 between Yara Australia Pty Ltd and BFPL.
82 These documents are not financial records, in my view, and so are not affected by s 421 and s 290 of the Corporations Act. While these would be affected by the general law right of inspection I would refuse to order inspection or access to the documents on the basis that the question of the off‑take price under that agreement is highly referable to the value of the assets of BFPL and the share price and that to order such inspection during the course of the receivership, while the receivers are involved in the realisation of assets, including shares, the sale thereof may be threatened or imperilled if inspection or access to this class of documentation were ordered.
83 Category [4(d)]: The applicant requires inspection of or access to the audited accounts of BFPL from June 2006 to December 2010.
84 BFPL recognise that the applicant is entitled to inspect these documents.
85 There will be an order for inspection of the documents in category [4(d)].
86 Category [4(e)]: The applicant seeks inspection of or access to documents "evidencing the production profile" of BFPL's ammonia production facility plant generated since 1 January 2010, including print outs, management reports and operational reports.
87 On the evidence before the Court it is unclear whether the documents identified are anything but records of production information, with little or nothing to do with financial information recording. However, I note the applicant says, in [16] of his affidavit sworn 9 March 2011, that in his capacity as managing director of BFPL, he is aware that:
(1) the plant operates DCS (digital control system), which is an automated computer system that records data about the plant such as outputs, inputs, expenditure and capacity;
(2) BFPL generates "monthly management reports" which are reports to executives prepared on a monthly basis that incorporates summaries of data such as budgets, expenses, sales and profits.
88 I do not consider, based on this description, that the digital control system data records in (1) may be described as "financial records". However, on this evidence, which has not been challenged by the receivers, the monthly management reports referred to in (2) plainly constitute financial records as defined.
89 In all the circumstances, it does not seem to me to be a difficult task for the receivers to provide inspection of the monthly management reports identified in [16] of the affidavit of the applicant sworn 9 March 2011 that have been generated since 1 January 2010 and I would order accordingly.
90 Otherwise, I have difficulty in seeing how such documents can be called relevant to the defence of proceeding WAD 66 of 2011 in this Court or proceeding SCI 2011 02166 in the Supreme Court of Victoria in which the applicant is a plaintiff. Accordingly, I cannot see that s 198F of the Corporations Act has any general application to this category of documents. In any event, as I have ruled, inspection by agents, as proposed, is not something the Court is empowered to order under s 198F.
91 However, there also remains the general law right of inspection by a director. In my view, there is no good reason as to why operational information of the type identified in this category and the financial records should not be provided to the applicant under this right of inspection.
92 Accordingly, I would order inspection of the documents described in [4(e)] of the proposed orders.
93 Category [4(f)]: The applicant seeks inspection of or access to documents generated by the respondents or at the respondent's request by a third party, for the purpose of preparing the prospectus of the first respondent dated May 2008.
94 The receivers acknowledge that third parties or experts were engaged to provide advice in relation to a proposed public offering on the first respondent in or around May 2008.
95 I do not consider that on the face of it, documents falling into this category constitute financial records for the purposes of either s 290 or s 421 of the Corporations Act.
96 However, on the face of it, the applicant is entitled pursuant to the general law right of inspection to have access to such documents, although they should not be left at large as the identification of them by the receivers is likely to require something of a goose chase and be considerably onerous.
97 In that regard, I note that the applicant in [22] of his affidavit sworn 19 April 2011 and filed 4 May 2011 says that a number of experts were engaged to provide advice with respect to the proper valuation of the second respondent and these included accountants, valuers, auditors and capital raising advisors.
98 I would, based on this evidence, order that the applicant be entitled to inspection of and access to the expert reports of those accountants, valuers, auditors and capital raising advisors who provided advice with respect to the proper valuation of BFPL for the purpose of a prospectus produced by the first respondent in about or in the period leading up to May 2008.
99 Category [4(g)]: The applicant seeks inspection of or access to documents, invoices, receipts of transactions, loan documentation and correspondence relating to payments made with respect to construction costs of the ammonia production plant from 1 January 2003 to 31 July 2006.
100 The applicant requires access to such documents for the purposes of the Supreme Court of Victoria proceeding SCI 2011 02166, which the parties generally describe as the cost overrun proceedings instituted by the applicant as plaintiff.
101 It is clear enough that documents falling into this category will be the subject of disclosure or discovery in those proceedings.
102 In my view, it would be redundant and otiose, and at this point of the receivership of BFPL an unnecessary burden that would distract the receivers from their pre‑eminent role in realising the assets of the company, to have to undertake the effective early discovery of those documents when they will be required to be discovered, pursuant to the regime of the Supreme Court of Victoria in due course.
103 For that reason, I would refuse to make a compliance order pursuant to s 198F of the Corporations Act as well as for the reason that the proposed inspection is by an agent, which is not available under s 198F.
104 For the reasons given earlier, I do not consider that access to such documents may be required under the general law right of inspection as I do not consider that, in the circumstances of this case, inspection is necessary for the performance of the applicant's responsibilities and duties as a director of BFPL, and in that sense, it is not necessary to advance the best interests of the company.
105 Undertaking as to cost of providing inspection or access: Finally, there is a question concerning the costs and expenses surrounding the inspection or access to various documents in respect of which I would make compliance orders. The task may be considerable. It is appropriate that the applicant should meet the expense to which BFPL may be put in facilitating inspection or access. In this regard I note that in Geneva Finance the Court ordered inspection of relevant documents upon the filing of a written undertaking, signed personally by the first respondents to cover amongst other things the costs of inspection: see Geneva Finance at 516.
106 The applicant, through his solicitors, has indicated to the Court that he is prepared to meet the reasonable expenses incurred by BFPL in compliance with any orders the Court makes for access to an inspection of documents held by the company and undertakes to meet all reasonable expenses. The applicant's solicitors have advised the Court that they have instructions to propose that this undertaking be secured by way of a payment into their trust account in the amount of $50,000 for payment of such invoices as and when they fall due.
107 I will hear further from the second respondent, BFPL, as to the appropriateness of this undertaking.