At HLB Mann Judd Insolvency WA, we are occasionally approached by creditors and third parties for an opportunity to inspect the records of a company in liquidation.
Sometimes the request is made by a competitor, for which there are no legitimate grounds to acquiesce to the request. In a marketplace where commercial intelligence is a precious commodity, allowing a competitor access to records like client lists and other items of intellectual property and know-how would be prejudicial to the liquidation process.
Directors of the company in liquidation on the other hand have sections 198F and 290 of the Corporations Act 2001 (“the Act”) on their side, permitting them access at all reasonable times to the records of a company, on the condition that their request for access relates to a legal proceeding against them.
Creditors and shareholders may inspect the records of a company under section 486 of the Act where a Court makes an order for the inspection. The role of the Court is to consider the rationale for the request to inspect the records. If a creditor, for example, asks for access to the records because they want to learn what one of their fellow competitors, who is also a creditor, is charging their clients, the request will most likely be knocked back.
Having outlined the rights of creditors in section 486, creditors also have access through section 70-10 of the Insolvency Practice Rules (“IPR”) which was introduced under the recent (not so recent now) insolvency law records of 2017.
Section 70-10 of the IPR sets out all of the grounds on which a request would be regarded as unreasonable:
- complying with the request would substantially prejudice the interests of one or more creditors or a third party and that prejudice outweighs the benefits of complying with the request; or
- the information, report or document would be privileged from production in legal proceedings on the ground of legal professional privilege; or
- disclosure of the information, report or document would found an action by a person for breach of confidence; or
- there is not sufficient available property to comply with the request; or
- the information, report or document has already been provided; or
- the information, report or document is required to be provided under the Corporations legislation within 20 business days of the request being made; or
- the request is vexatious.
If none of the above apply, then the request from a creditor is reasonable and the Liquidator should comply. Simple right? Not really… there is a lot to consider and interpret in there!
So does this new provision give more power to creditors? We are not sure just yet and in practice, it has not been well tested. It seems that there are just more hurdles for creditors to jump over before a request is approved; however section 70-10 should see only proper requests to inspect records made in good faith getting past the Liquidator.
About the author
Greg Quin is a Director at HLB Mann Judd Insolvency WA and has been with the team for 10 years. Greg oversees the daily operations of the many insolvency appointments managed by the HLB Insolvency team and looks after the operations of the practice.
If you have any queries about insolvency matters, please feel free to contact Greg on 08 9215 7900, 0402 943 091 or via email to firstname.lastname@example.org.