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Re ICRA Rolleston Pty Ltd; Canavan v William James Harris, Keith Alexander Crawford and Jason Preston as Receivers and Managers of ICRA Rolleston Pty Ltd
This matter concerned an application under s 1303 of the Corporations Act 2001 (Cth) for inspection of a contract of sale entered into by the receivers and managers appointed to a company on the basis that the contract was a “financial record” for the purpose of s 421 of theCorporations Act 2001 (Cth). Having regard to the inclusive definition of “financial records” in s 9 of the Corporations Act2001 (Cth), together with the ordinary meaning of the term, Flanagan J held that the contract of sale was not a “financial record”.
18 May 2021
ICRA Rolleston Pty Ltd (“ICRA”) holds an interest in a joint venture relating to a coal mine near Rolleston, Queensland. . In December 2020, the respondents were appointed as receivers and managers () and the company also went into administration. –. In February 2021, the respondents entered into a contract to sell ICRA’s interest in the joint venture (“the contract of sale”). .
The applicant, the sole director of ICRA, applied under s 1303 of the Corporations Act 2001 (Cth) for an order compelling the respondents to make the contract available for inspection and copying. . Section 421(2) of the Corporations Act 2001 (Cth) permits, inter alia, a director to “inspect records kept by a managing controller of property of the corporation” for the purposes of s 421(1)(d). Section 421(1)(d) requires a managing controller (like the respondents) to “keep such financial records as correctly record and explain all transactions that the managing controller enters into as the managing controller”. .
Pursuant to s 9 of the Corporations Act 2001 (Cth):
“‘financial records’ includes:
(a) invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and
(b) documents of prime entry; and
(c) working papers and other documents needed to explain:
(i) the methods by which financial statements are made up; and
(ii) adjustments be made in preparing financial statements.” .
On the hearing of the application before Flanagan J, the debate centred around whether the contract of sale was a “financial record”, either because it was a document of prime entry, a working paper or other document, or, as s 9 is an inclusive definition, because it was within the ordinary meaning of “financial record”. .
The term “document of prime entry” is not defined in the Corporations Act 2001 (Cth). . Having considered the authorities (–) and expert evidence (–), Flanagan J held that the contract of sale was not a document of prime entry. Rather, in his Honour’s view, “[i]t is the document that records the financial effect of the transaction the subject of the contract that constitutes the document of prime entry”. .
As to the applicant’s alternative submission that the contract of sale was a working paper or other document needed to explain the methods by which financial statements are made up or adjustments are to be made in preparing financial statements, Flanagan J considered that, in the circumstances, the contract of sale was not within this category of “financial records”. . The authorities did not require a conclusion that a transactional document in relation to a future transaction, like the contract of sale, was within this aspect of the definition of “financial records”. –.
Justice Flanagan was also not persuaded that the contract of sale was within the “ordinary meaning” of the term “financial records”. . The applicant submitted that the respondent’s obligation under s 421(1)(d) to keep such “financial records” as correctly record and explain all transactions undertaken in their role as receivers and managers extended to the contract of sale. . His Honour observed, however, that this “submission … fails to draw any distinction between ‘financial records’ which correctly record and explain the transaction and the source document which evidences the transaction”. . Applying Boulos v Carter (2005) 220 ALR 572, Flanagan J considered that there was a distinction between: source documents, which evidence a contract or transaction; financial records, which reflect the effect of a contract or transaction; and financial statements, which account for a contract or transaction and which are compiled using financial records. . The contract of sale was a source document, not a financial record. .
In the result, the application was dismissed with the parties to be heard as to costs. .
S Walpole of Counsel