What are Books of the Company?

The scope of a Liquidator’s power to demand copies of documents under Section 530A of the Corporations Act 2001

We recently assisted a client with a letter of demand received from a liquidator of a building company (in liquidation) (the “First Company”).

The First Company had initially entered into a building contract with our clients to construct a residence, but ran into financial trouble before the work could be completed.  It subsequently entered into a novation agreement with our client and another building company (the “Second Company”) to transfer the First Company’s building contract with our clients to the Second Company, after which it then went into liquidation.

The Liquidator’s demand

The liquidator appointed to the First Company issued a written notice under section 530B of the Corporations Act 2001 (the “Act”) to our clients demanding that they deliver up copies of various documents, including:

• A copy of our clients’ original contract with the First Company;
• Copies of all invoices issued to our clients by the First Company and remittance advices recording payments from our clients;
• A copy of any executed (signed) Deed of Novation between our clients, the First Company and the Second Company;
• Copies of all invoices issued to our clients by the Second Company and remittance advices recording payments from our clients;
• Copies of any other documents which our clients would consider relevant to the liquidator’s investigations into the affairs of the First Company.

Uncertain regarding their obligations under the Act, our clients contacted us to seek our advice and assistance.

It was immediately apparent to us that there was an issue with the legal basis for the demand, due to the limited scope of a liquidator’s power under section 530B.

Scope of section 530B of the Act

A liquidator has various powers under the Act to enable him or her to investigate the affairs of a company in liquidation.

Under section 530B, the liquidator of a company may issue to a person, “a written notice requiring the person to deliver to the liquidator, as specified in the notice, books so specified that are in the person’s possession”,[1]  and the person is not entitled, as against the liquidator, to retain possession of books of the company.[2]

The definition of “books” under the Act is very broad,[3] however section 530B is worded to apply only to the books “of the company”.   This limited scope of Section 530B was confirmed by Justice Austin in Hall v Sherman,[4] who held that:

“.. it is particularly important in the present case to pay attention to the precise wording of s 530B.  The liquidator’s right to obtain or retain possession of books, as against other persons, is confined to “books of the company”.  As a matter of natural meaning, those words refer to books which belong to the company, and may extend to books to which the company has some lesser but proprietary interest.” (emphasis added)

In other words, section 530B of the Act will generally only entitle a liquidator to copies of documents that belong to the company, and would not usually extend to customers’ own copies of documents, as in the case with our clients.

Response to Liquidator

Based on our advice, we wrote to the liquidator setting out the above position and conveying our clients’ rejection of the section 530B demand on that basis.  Our clients have since received no further correspondence from the liquidator.

Conclusion

The scope of a liquidator’s powers of investigation should be properly considered before their exercise (in the case of a liquidator) and (in the case of a company officer, or other person) prior to responding to a request made pursuant to a statutory power.

For practical legal advice, support and assistance regarding your particular circumstances, call our insolvency lawyers.  We are ready to step in and assist you.

About Mark Harley | Principal

Mark has practiced in commercial law, commercial litigation and insolvency law for almost 10 years. He established the firm in 2014. With degrees in law and information technology, as well as being a director of several companies, Mark speaks the language of business owners and has a first hand understanding of the issues facing his clients.

[1] 530(4).

[2] 530(1)(a).

[3] Under section 9 of the Act, the definition of “books” includes: (a) a register; (b) any other record of information; (c) financial reports or financial records, however compiled, recorded or stored; and (d) a document.

[4] [2001] NSWSC 810, [47], cited in Areva NC (Australia) Pty Ltd v Summit Resourcess (Australia) Pty Ltd [No 2] [2008] WASC 10, [6] – [7]; Engel v National Biodiesel Limited [2015] FCA 1114, [28].