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”.

Flanagan J

18 May 2021

ICRA Rolleston Pty Ltd (“ICRA”) holds an interest in a joint venture relating to a coal mine near Rolleston, Queensland. [6]. In December 2020, the respondents were appointed as receivers and managers ([8]) and the company also went into administration. [9]–[10]. In February 2021, the respondents entered into a contract to sell ICRA’s interest in the joint venture (“the contract of sale”). [11].

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. [1]. 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”. [2].

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.” [3].

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”. [15].

The term “document of prime entry” is not defined in the Corporations Act 2001 (Cth). [19]. Having considered the authorities ([20]–[34]) and expert evidence ([35]–[39]), 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”. [40].

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”. [49]. 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”. [45]–[49].

Justice Flanagan was also not persuaded that the contract of sale was within the “ordinary meaning” of the term “financial records”. [50]. 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. [54]. 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”. [55]. 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. [58]. The contract of sale was a source document, not a financial record. [64].

In the result, the application was dismissed with the parties to be heard as to costs. [65].

S Walpole of Counsel