New South Wales Supreme Court CITATION : Haines v Altarcoo Pastoral [2009] NSWSC 214 HEARING DATE(S) : 16 March 2009 JUDGMENT DATE : 16 March 2009 JURISDICTION : Equity JUDGMENT OF : White J EX TEMPORE JUDGMENT DATE : 16 March 2009 DECISION : Refer to para 38 of judgment. CATCHWORDS : CORPORATIONS - management and administration - inspection of or access to financial records, registers, documents and other information of company – order sought under s 247 of the Corporations Act 2001 (Cth) – application made in good faith and for proper purposes – order for inspection made – no question of principle LEGISLATION CITED : Corporations Act 2001 (Cth) CATEGORY : Procedural and other rulings CASES CITED : Re Augold NL [1987] 2 Qd R 297 Gwendoline Haines by her tutor Protective Commissioner of New South Wales & 1 Or PARTIES : v Altarcoo Pastoral Company Pty Limited FILE NUMBER(S) : SC 5048/08 COUNSEL : Plaintiffs: A J McInerney Defendant: M Foley (solicitor) SOLICITORS : Plaintiffs: Lee & Lyons Lawyers Defendant: Foleys Solicitors IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST WHITE J Monday, 16 March 2009 5048/08 Gwendoline Haines by her tutor Protective Commissioner of New South Wales & 1 Or v Altarcoo Pastoral Company Pty Limited JUDGMENT 1 HIS HONOUR: The plaintiff is a member of the defendant. She holds 41 of 201 issued A Class shares and 120 of 4,120 issued B Class shares. The remaining shares are held by different members of the plaintiff's family. 2 On 4 October 2001, the Guardianship Tribunal ordered that the management of the plaintiff's affairs be committed to the Protective Commissioner. The Protective Commissioner was also appointed manager of the affairs of Mr Keith Haines, another shareholder. He died on 9 December 2008. 3 In this application, the plaintiff, by her tutor, the Protective Commissioner, seeks orders under s 247A of the Corporations Act 2001 (Cth) for inspection of certain books of the defendant. The director of the defendant is Mr Glenn Haines. He is the plaintiff's son. The defendant owns land at Luskintyre near Maitland. It appears that the property has been worked as a diary farm by Mr Haines. On 20 September 2007, Mr Christopher Zucker of Lee & Lyons Lawyers, acting on the instructions of the Protective Commissioner, wrote to the manager of the defendant in relation to its affairs. He stated that he had been instructed to investigate the affairs of the defendant and noted that both the plaintiff and Mr Keith Haines owned shares in the company. He said that he was instructed that no dividends had been paid for many years and that questions had arisen, particularly in recent years, as to management. He stated that: " There appears to be at least a suggestion that one or more of the current directors have preferred his interests and those of his family company to the interests of Altarcoo and its other shareholders ." 4 He sought production of various documents, including balance sheets and supporting statements for the years ended 30 June 2001 to 30 June 2007. He asked whether there was any recent valuation of the property. He asserted that the property Luskintyre was not recorded as an asset of the company, in the balance sheet he had. He sought an explanation in respect of that matter, and also raised questions concerning rent. 5 On 15 October 2007, Mr Zucker wrote to Mr Michael Unicomb of Michael Unicomb & Associates on the same subject matters. Mr Zucker said that his instructions were to value the shares of Mr Keith Haines and the plaintiff in the defendant, and then to consider an appropriate strategy for either or both of them to exit the company and to liquidate their interests in it. 6 In his letter to Mr Unicomb of 15 October 2007, Mr Zucker widened the ambit of the documents which he sought. He sought the financial statements, not just balance sheets and depreciation schedules, from 2001 to 2007, a detailed list of plant and equipment, and numerous other specific classes of documents. 7 On 25 October 2007, Mr Zucker wrote again to Mr Unicomb and again asserted that a serious concern existed that assets of the defendant had been used for the benefit of Mr Haines, or a company controlled by Mr Haines named Bensyd Pty Limited. He said that the courses that were available included an application for an order that the defendant be wound up. 8 On 26 October 2007, Mr Unicomb advised that it would take considerable time to prepare financial statements for the period sought by Mr Zucker. Mr Unicomb said: " All the requests that you have raised in your correspondence of the 15th October cannot be met until the completion of the Financials and income Tax returns of the company. Depreciation Schedules, loan schedules; etc will all be made available to you in hard copy and within the produced financials. The information requested is for 7 years; the work required is quite large; the timeframe to prepare it is quite short considering the normal accountants scheduling requirements at this time of the year. " 9 In the same email, Mr Unicomb proposed a time by which this work could be done. It was then envisaged that the work could be finalised during November. 10 Mr Zucker replied by suggesting that a meeting be provisionally scheduled for Friday, 7 December 2007, with the documents sought by his firm being provided by 16 November 2007. However, it appears that it took longer than anticipated for the financial statements and other documents to be completed. It appears that the financial statements were completed in early January 2008. 11 So far as it appears from the evidence on this application, Michael Unicomb & Associates did not advise Mr Zucker that the financial statements were available. Nor were the earlier discussions followed up. Although it appears that the financial statements were completed in early January 2008, they were not then supplied to Mr Zucker or the Protective Commissioner. 12 In August 2008, Mr Zucker instructed Mr Hall of Forsyths Chartered Accountants to seek his assistance with respect to possible proceedings for orders under s 233(1) of the Corporations Act. Mr Hall advised that he would require certain classes of documents, namely: " A. Financial Statements and Depreciation Schedules in respect of the years ended 2001 to 2008 inclusive; B. Detailed list of plant and equipment owned by the company as at 30th June, 2008; C. Copies of any lease or hire purchase agreements as at 30th June, 2008; D. Copies of the stamped leases and details of rent paid in respect of the property owned by the company; E. Supporting documents on the calculation of the rent on the property; F. Details of shares owned by the company, both unquoted and quoted, as at 30th June, 2008; G. Details of any other investments as at 30th June, 2008; H. Details of stock on hand as at 30th June, 2008; I. Copies of loan agreements with Stacks Managed Investments Limited and any other lender together with the purpose of the loan; J. Copies of loan agreements with CBFC Limited and any other lender together with the purpose of the loans; K. Details of any recent valuations undertaken on property and plant and equipment owned by the company. " 13 On 3 October 2008, the plaintiff and Mr Keith Haines, both of them acting through the Protective Commissioner, filed the originating process seeking orders for the production of these classes of documents. 14 On 17 November 2008, Austin J made the order sought in the originating process and required that the documents be produced for inspection within 21 days. That order was not consented to by the defendant, but nothing was put in opposition to the relief sought, except the absence of any follow-up correspondence after the correspondence of October 2007. 15 With the possible exception of the loan agreements with Stacks Managed Investments Limited, and documents showing the purpose of that loan, the documents required to be produced on 17 November 2008 were so produced for inspection. There is a dispute as to whether the loan agreement with Stacks Managed Investments Limited, and documents which show the purpose of that loan, were produced. It is unnecessary to resolve that dispute because the defendant has no objection to providing a further copy of the documents. 16 On 2 February 2009, Mr Hall advised Mr Zucker that: " To enable me to undertake a detailed review of the financial statements, I would require the following information: 1. Detailed trial balances as at 30th June, 2002 to 2008 inclusive; 2. General ledger reports for all accounts in respect of the years ended 30th June, 2002 to 2008; 3. Source documents in respect of the years ended 30th June, 2002 to 2008, including but not limited to the following: § Cheque butts § Deposit books § Bank statements § Newcastle Permanent statements § Journals § Cash dockets § Working papers § Management agreements § Debtors ledgers including aged debtors listing § Creditors ledger including aged creditors listing § Detailed creditors invoices § Detailed debtors invoices § Income Tax Returns § Business Activity Statements § Detailed depreciation schedule § Shareholder/director loan agreements § All ATO correspondence – including Running Account Balances § All ASIC correspondence – including annual Company Returns § Company Register – outlining directors/ shareholders/constitution/memo and articles § Documentation in respect of the investment with The Graham Unit Trust (Trustee Seltak Pty Ltd)." 17 On 11 February 2009, Mr Zucker wrote to Mr Unicomb and to Mr Foley, solicitor, who acts for the defendant in these proceedings. He said that in the interests of Gwendoline Haines, that is the plaintiff, and as agent for the solicitor of the proposed executor of the Estate of Keith Haines (in respect of which probate has not yet been granted), he required further information. He then listed the same documents as had been identified by Mr Hall as documents which Mr Hall needed in order to undertake a detailed review of the financial statements. 18 The originating process was before the court on 23 February 2009. On that day the plaintiff was given leave to amend the original originating process to seek orders for the production of those documents. 19 On 6 March 2009, Mr Foley wrote that in respect of the items mentioned by Mr Zucker in his letter of 11 February 2009, he was instructed to reply as follows: " 1. Detailed Trial Balances. Why was not [sic] this requested previously and included in your clients' Original Summons. All the information contained in the Trial Balances is to be found in the Profit & Loss Statements and Balance Sheets which have already been provided. 2. General Ledger Reports. Again if this material is being sought why was not [sic] this requested previously and included in your clients' Original Summons. All the information contained in these Reports is merely the item by item entry of what is to be found in the Profit & Loss Statements and Balance Sheets which have already been provided. 3. Source Materials. If these items are really required then why weren't they requested previously and included in your clients' Original Summons. Is it the intention of the Plaintiff to redo the entire Sets of Accounts for the Company for the whole of the stated period. Clearly, all the working papers and journals are properly the property of the Accountant and is not information that the Defendant can be expected to supply. We are also instructed to advise your client further that: a) your firm has been given a detailed Depreciation Schedule already; b) Income Tax Returns for the Defendant are being prepared and a copy of those Returns will be supplied to your firm when they have been filed; c) the BAS Statements are not required to be lodged as they below [sic] threshold and therefore exempt; d) there are no shareholders loan agreements; e) as to the ATO correspondence there are no running account balances; f) there is no ASIC correspondence and the Annual Returns are documents of public record. g) the Loan Agreement with Seltak Pty Ltd has been supplied to you. This was a loan that was made by the Defendant and repaid with interest. It was an at arms length transaction which was sourced by the same loan broker who sourced the loan from Stacks. h) the Loan Agreement with Stacks has been supplied to you. The documentation that was supplied was all the Defendant had in its possession. We trust that the above is [sic] satisfactory reply to the materials sought by your client in its Amended Summons. " 20 The plaintiff maintains her application for orders requiring the production of documents for inspection as sought in the amended originating process, being the documents identified by Mr Hall in his last correspondence. It appears from Mr Foley's letter of 6 March 2009, that in the case of some documents, there are none to produce. Nonetheless, subject to the question of ownership of documents, there appears to be no issue that some documents are in existence which fall within the categories sought. 21 Section 247A of the Corporations Act provides: " 247A Order for inspection of books of company or registered managed investment scheme (1) On application by a member of a company or registered managed investment 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. (2) A person authorised to inspect books may make copies of the books unless the Court orders otherwise. ... (6) A person authorised to inspect books may make copies of the books unless the Court orders otherwise. " 22 It is clear that the documents are sought for purposes of the plaintiff bringing proceedings for an order under s 233 of the Corporations Act if the question of the plaintiff obtaining a return on her shares in the defendant company is not otherwise satisfactorily resolved. Alternatively, the plaintiff, through the Protective Commissioner, is considering the institution of proceedings for an order for the winding-up of the defendant on just and equitable grounds. 23 I do not understand it to be disputed that these are proper purposes for seeking inspection of documents pursuant to s 247A. It was submitted for the defendant that the plaintiff was seeking an order, in effect, for preliminary discovery, but assuming that to be so it does not follow that that would not be a proper purpose for seeking inspection of documents pursuant to s 247A (see Re Augold NL [1987] 2 Qd R 297 at 309). 24 It was submitted for the defendant that the information sought in the detailed trial balances and general ledgers were in any event reflected in the profit and loss statements in the balance sheets. No doubt the information in those documents ought to be reflected in the financial statements as at the dates the inspection statements from financial statements were prepared, but it would be surprising if the general ledgers and trial balances did not contain additional information from what would appear from the profit and loss statements and balance sheets. 25 In any event, Mr Hall requires access to those documents as well as to other source documents in order to review the financial statements. It is not a legitimate objection to the company being required to produce the documents for inspection that Mr Hall proposes, in effect, an audit of the financial statements. Even if, as is put, it could have been open to the plaintiff at a general meeting of the company to seek to propose a resolution that the accounts be audited, the plaintiff is not confined to such a course if she wishes to investigate in detail the accuracy of the financial statements. 26 It was also submitted, and indeed is put by the accountant for the company, that detailed trial balances, general ledgers, reports, journals and working papers are the property of Michael Unicomb & Associates and not of the defendant. If that were so, then I do not understand the plaintiff to contend that she would be entitled to inspect such books pursuant to an order under s 247A. This is not the occasion for determining the question of ownership of such documents, but I am not to be taken as accepting that such financial records are not the records of the company. 27 Section 286 of the Corporations Act requires a company to keep written financial records that correctly record and explain its transactions, financial position and performance and would enable the true and fair financial statements to be prepared and audited. The financial records required to be kept include documents of prime entry, working papers and other documents needed to explain the methods by which financial statements are made up and adjustments are made in preparing financial statements. 28 Prima facie, it would appear to me that documents such as general ledgers, trial balances and books incorporating the journal entries made to prepare or finalise the financial statements would be records of the company, even though they were maintained by an accountant retained by the company. 29 The evidence adduced by the defendants on this application does not establish that there are no books of the company falling within the descriptions in paragraph 1(a), and (b), let alone 1(c). If there is a later dispute as to whether any particular document, such as trial balances or a general ledger, is a company document or not, then that can be dealt with if the accountants contend that they, and not the company, own the documents. 30 Mr Haines swore an affidavit on this application in which he described generally the history of the farm and work which he has done on it. He deposed since 1967 he has worked very hard to survive and to improve Altarcoo's property. He deposed: " I am very concerned that these proceedings against the Company are now being run for the purpose of incurring fees on behalf of the lawyers and accountants who are instructed by the Protective Commissioner. Whilst I accept that the Commissioner is entitled to the information originally being sought [sic] I do not accept that it was necessary for these proceedings to have been commenced and that the Amended Summons was at all necessary to achieve what the Protective Commissioner is entitled to receive ... " 31 There is simply no evidence that this application has been brought for the improper purpose of lawyers and accountants instructed by the Protective Commissioner generating fees. No doubt if that were the purpose of this application it could not be said that the application was made in good faith or for a proper purpose. But that is an extravagant contention without any basis in the evidence. 32 It is entirely legitimate for the Protective Commissioner to consider whether the plaintiff has and will receive any value she should have received or will receive from her minority shareholding in the defendant and to instruct lawyers and accountants for that purpose. This application is not the occasion for considering the prima facie strength of any application that might ultimately be made under s 232 of the Corporations Act. It is not a legitimate ground of objection for Mr Haines to say, as he does, that these proceedings result in the dissipation of company funds. Indeed, the costs of this application could have been avoided by the defendants providing the documents sought under cover of Mr Zucker's letter of 11 February 2009. 33 Mr Haines also expresses grievance that these proceedings should have been brought by the Protective Commissioner for his mother when, according to Mr Haines, she had been the company's and his greatest support over the years. Whether or not that is so is hardly material to her right, through the Protective Commissioner, to the documents sought. 34 Mr Foley, who appeared for the defendant, also relied upon the fact that Mr Haines has applied to the Guardianship Tribunal for an order to revoke the present financial management order in favour of the Protective Commissioner and is seeking an order making himself responsible for her care. The fact that such an application is pending is irrelevant. It is not possible on this application to form any view as to its likely success. 35 Finally, it is not suggested that if the defendant is required to produce the documents sought for inspection, this will interfere with the day-to-day management of the company's affairs. It would appear that the documents in question are in the possession of the accountants and it is not suggested that there would be any difficulty in producing them for inspection. 36 It is true that there was considerable delay before the making of the original application in October 2008. The reasons for that delay are not clearly explained in the evidence. It does not appear that the defendant's accountants produced the financial statements which Mr Zucker had asked for, or told him that the documents were available to be inspected. On the other hand, it does not appear that Mr Zucker pursued that matter until the commencement of the proceedings. However that might be, the claim, as it was originally framed, was dealt with by Austin J on 17 November 2008. The present application brought by amendment has been brought with reasonable promptness after the documents originally sought were made available for inspection. 37 In short, I am satisfied that the present application is made in good faith and for proper purposes, and there is no discretionary reason to justify withholding the order. 38 For these reasons I make the following orders: 1. Order that within 21 days the defendant permit Christopher Matthew Zucker and Stephen Neville Hall, on instructions of the Protective Commissioner and in the interests of the first plaintiff, to inspect and take photocopies of (a) loan agreements with Stacks Managed Investments Limited together with documents which show the purpose of the loan; and, (b) the documents referred to in paragraphs (a)-(c) of paragraph 1 of the Amended Originating Process; 2. The exhibits may be returned after 28 days; and 3. I order that the defendant pay the plaintiff's costs of the Amended Originating Process from 23 February 2009. I order that there be no order as to costs prior to 23 February 2009 with the intent that each party bear her, his and its own costs up to that date. ****** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.