Khullar Family Investment Pty Ltd. Vs. The Artificial Intellect Group Pty Ltd.

Australia

13.06.2023

Civil

Court has a discretion to order an inspection if good faith and proper purpose is proved

By originating process filed 13thDecember, 2022, the Plaintiff sought an order pursuant to Section 247A of the Corporations Act, 2001 authorising the Plaintiff and its advisers to inspect certain books of the Defendant.

An order can only be made if the two criteria set out in Section 247A(5) are satisfied. In this case, it was the primary position of the defendant that the plaintiff was not acting in good faith. In ascertaining whether the applicant is acting in good faith and for a proper purpose the court's task is to determine whether there is a 'case for investigation'. Even if the court considers the applicant is acting in good faith and for a proper purpose, the court has a discretion about whether to order inspection and if so, on what terms.

It is difficult to see how access to the documents sought by the plaintiff will facilitate an application for leave under Section 237 of the Corporations Act. That section sets out when leave can be granted to certain persons including members of a company to take action on behalf of the company. The criteria for the grant of leave are set out in Section 237(2), but in any application for leave it is necessary to identify the cause of action which the company is said to have against the prospective Defendants.

The Plaintiff is a 0.03% shareholder in the Defendant. To allow a party which has such a small shareholding to undertake what the defendant describes as a 'free ranging' enquiry would be at odds with established principles. It may well be the Plaintiff believes the issue of shares by the company to various parties was improper or inappropriate. If that is the case then the plaintiff can take proceedings to unwind the share issue. But that is not a matter which can justify an order being made under Section 247A. The Plaintiff's application will be dismissed.

Tags : Inspection Records Entitlement

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