Hostility and threats pose no bar to shareholder’s inspection of books

Introduction

Section 247A of the Corporations Act 2001 (Cth) (Act) is a useful tool which lets shareholders seek Court orders allowing them to inspect a company’s books to seek information relevant to their shareholding.  In Rasley (Singapore) Pte Ltd v Financial & Energy Exchange Ltd [2020] FCA 1462 (Case), the Federal Court granted an application for inspection in spite of the applicant’s hostile attitude and threats made to the company.

The Facts

Rasley (Singapore) Pte Ltd (Rasley) was a shareholder of Financial and Energy Exchange Ltd (Company) holding approximately 0.5% of the Company’s shares. The Company’s business activities related to the development and operation of financial market infrastructure platforms.

Rasley applied to inspect the books of the Company pursuant to section 247A of the Act (Application). Rasley’s Application came after the Company entered into a number of transactions. Rasley quoted the following transactions in favour of its application:

      1. a number of share issues between 3 June 2017 and 5 April 2018, which increased the Company’s total number of shares by 85%;
      2. related party transactions disclosed within the Company’s annual reports; and
      3. a lease agreement with a related party where queries were raised as to whether the Company was paying rent at market value.

The Company opposed Rasley’s Application arguing that it was not made in good faith and for a proper purpose. In supporting its argument, the Company cited that:

      1. the Company (through its in-house counsel) had invited Rasley’s director to discuss his concerns about the Company (to which the director denied); and
      2. there were a series of combative emails received by the Company from Rasley’s director, one of which stated he would ensure that the Company “never trades”.

Decision

Jackson J considered the categories of transactions identified by Rasley in his Honour’s analysis of whether the inspection was made for a proper purpose. Jackson J found that:

      1. Rasley was entitled to investigate the Company’s books in circumstances where its shareholding was significantly diminished;
      2. While Rasley’s director had displayed an “angry, perhaps spiteful attitude”, such an attitude alone did not preclude Rasley from being able to inspect the books.

While access was permitted, his Honour limited Rasley’s access to documents to those that were capable of addressing the legitimate concerns raised.

Conclusion

The Case has demonstrated that a shareholder’s conduct will not necessarily dissuade the court from making an order under section 247A of the Act. The relevant question will be whether the shareholder’s predominant purpose for inspecting the books relates to the proper exercise of its rights as a shareholder. Hostility shown towards the Company’s management did not deter the Court from finding that a proper purpose existed.