When can a creditor request access to books and records of a company under external administration?

Background

The Insolvency Practice Schedule (Corporations) (“IPS”) was inserted into the Corporations Act 2001 (“Act”) by the Insolvency Law Reform Act 2016 (Cth).  Under section 70-45 of the IPS, a creditor can request an external administrator of a company to give company information to the creditor. The impetus behind introducing this section was trying to achieve greater transparency for creditors who, through their inspection of the administrator’s files, can monitor the external administrator’s conduct.

The introduction of section 70-45 has birthed a common misconception that creditors have a right to access the company’s books and records without having recourse to the appropriate legislative requirements. If requests are made without adequate grounds to do so, the requests may be denied.

The Legislation

Section 70-45 of the IPS is outlined below:

1. A creditor may request the external administrator of a company to:

    a) Give information; or
    b) Provide a report; or
    c) Produce a document;

to the creditor.

2. The external administrator must comply with the request unless:

    a) The information, report or document is not relevant to the external administration of the company; or
    b) The external administrator would breach his or her duties in relation to the external administration of the company if the external administrator complied with the request; or
    c) It is otherwise not reasonable for the external administrator to comply with the request.

How have requests for books and records been handled by the Courts?

In the matter of Hewson v Gothard; Re Allco Finance Group Ltd (Receivers & Managers Appointed (in liquidation) [2014] FCA 320 it was held that ‘books of the company’ means books in the possession of the company at the commencement of the winding-up of a company, and copies of records of a company made after the company is placed into liquidation, for the purposes of section 486 of the Act. However, this does not include books that were created or retained during the course of the winding-up by the liquidator.

In the matter of Zoll Medical Australia, in the matter of Cardiac Defibrillators Australia Pty Ltd (in liquidation) [2022] FCA 167, a liquidator refused to provide access to the books and financial records of a company without a court order. The court did not criticise the liquidator’s actions, but did nonetheless order that the documents be produced as the provision of the information sought by the plaintiffs were necessary to ensure that the plaintiffs did not suffer “grave damage” and there was a tangible danger to the public if product recall notices could not be provided to purchasers of the products which were the subject of the Distributor Agreements.

Conclusion

In conclusion, this legislation enhances the transparency for creditors when reviewing a company’s books and records which in turn assists in upholding the liquidator’s conduct. Care should be taken, however, when making a request under section 70-45 of the IPS to ensure that the request is correctly made. Vexatious or unreasonable requests may require an external administrator to engage in complex litigation and potentially distract inappropriately from the administration process. This could also reduce the funds available to meet the claims of creditors, potentially making the request self-defeating in nature.

How can we help?

Amendments to legislation can be very complicated and difficult to interpret. At Chamberlains Law Firm we can help you to understand these amendments and ensure your compliance with the new provisions.

This article was prepared with the assistance of Annabel Randall*