A Liquidator’s Rights to the Books of a Subject Company under External Administration

Undoubtedly, recent news about big company entering into external administration attracts a lot of public attention. As part of the winding up process of a subject company placed under external administration, an appointed liquidator (or a “provisional liquidator”) may serve a formal Notice pursuant to s530B of the Corporations Act 2001 (Cth) upon a person who is in control of the subject company’s books, requiring that person to deliver such “books of the company” to the liquidator within a limited timeframe.

Unlike other rights conferred upon the liquidator by other parts of the Corporations Act 2001, s530B imposes an obligation on persons generally, rather than just upon officers of the subject company, and may include or third parties / unrelated entities of the subject company, or various professional groups such as accountants, financial advisers or solicitors that may have previously acted for, or given advice to the officers of the subject company.

As a person who is served with a Notice is not entitled, as against the liquidator, to retain possession of the “books of the company” or claim or enforce a lien on such books, they must give careful consideration to their response, as a failure to comply with a Notice is a strict liability offence.

How to respond to a Notice issued pursuant to s530B of the Corporations Act 2001?

Firstly, ensure that the Notice complies with the formal requirements of s530B, including that the Notice must:

1. be in writing;
2. specify the “books of the company” that are in the person’s possession; and
3. specify a period of at least 3 days as the period in which the Notice must be complied with.

Secondly, carefully review the specified list of “books of the company” requested to determine what books have been correctly captured by the Notice.

What documents and/or records constitute “books of the company”?

Although s9 of the Corporations Act 2001 broadly defines the term “books” to include a register, any other record of information, financial reports or financial records (however complied, recorded or stored), and a document, the Courts have narrowly interpreted the meaning of “books of the company”. The Courts have limited the scope of what “books” can be captured under a Notice issued pursuant to s530B, and interpreted the expression “books of the company” to refer to books which are owned or belong to subject company under external administration, or those books which it can claim a proprietary interest in.

In the matter of Cromwell Corporation Limited [2019] NSWSC 1608, Her Honour, Lees J set out the relevant authorities at [20] to [33] in relation to the interpretation of “books of the company”. In particular, at [23], Her Honour stated:

His Honour referred to consideration of the expression “books of company” in different sections of the Corporations Act in Hall v Sherman (2001) 40 ACSR 40; [2001] NSWSC 810 and Caratti v Harris & Kirman as Joint Liquidators of GH1 Pty Ltd [2019] FCAFC 124. Pausing to examine those authorities, in Hall v Sherman, Austin J considered the meaning of “books of the corporation” under section 431 (rights of a controller of property of a corporation to inspect books of the corporation that relate to that property) and “books of the company” under section 530B  (the liquidator’s entitlement to the books of the company). In respect of  section 530B , his Honour held at [47]: (emphasis added)

… 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. …

Given the narrow interpretation of “books of the company” by the Courts, a person is therefore only obligated to deliver to the liquidator books which can be identified as belonging to, or which the subject company can claim a proprietary interest.

If you have been issued with a Notice pursuant to s530B of the Corporations Act 2001 by a liquidator or via its solicitor, you should seek legal advice about your obligations on an urgent basis and before delivering any documents and/or records to the liquidator and/or its solicitor.

Disclaimer

This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.