DIRECTOR OF A COMPANY ENGAGED IN A COAL MINING JOINT VENTURE SEEKS TO INSPECT THE CONTRACT OF SALE ENTERED INTO BY THE RECEIVERS
Re ICRA Rolleston Pty Ltd [2021] QSC 98 (18 May 2021)
This is a determination on whether the plaintiff is entitled to inspect the contract which is said to be considered as included in the definition of “financial records” under the Corporations Act.
Facts:
ICRA Rolleston Pty Ltd (Company), Rolleston Coal Holdings Pty Ltd (Glencore) and Sumisho Coal Australia Pty Ltd are parties to a joint venture in respect of a coal mine located near Rolleston, Queensland. Glencore holds a 75% interest in the joint venture and its assets, and the Company and Sumisho each hold 12.5%.
The applicant is the sole director, an employee and a creditor of the Company. He is also one of three directors of the Company’s sole shareholder, ICR Australia Pty Ltd.
Glencore, as a secured creditor, appointed the respondents as receivers and managers of the Company pursuant to Glencore’s right under a charge.
The applicant appointed an administrator pursuant to S.436A of the Act on the basis that the Company was insolvent or likely to become insolvent at a future time. However, Glencore, at the first meeting of creditors, caused the administrator originally appointed by the applicant to be replaced by new administrators.
In or about February 2021, the respondents entered into a contract to sell the Company’s 12.5% interest in the joint venture. This contract of sale is not before the Court. It is accepted, however, that the contract is executory as the transaction it contemplates has not been completed and, as such, Glencore remains a creditor of the Company for the full amount of its lodged proof of debt (which exceeds $29 million). Glencore is the Company’s most significant creditor.
The applicant, told the new administrators that they ought to request details of the sale from the respondents. The applicant’s solicitors alleged that Pursuant to Corporations Act 2001 (Cth), S.421(2) the applicant has the right to inspect (and take copies of) the financial records which correctly record and explain the transactions entered into by receivers and managers of the Company.
The respondent replied that A contract is not a ‘financial record’ for the purpose of section 421(2) and, as such, the applicant is not entitled to inspect it.
Issue: Is a contract considered as a “financial record” which the applicant is entitled to inspect?
Law:
Analysis:
In the present case, the transaction that is the subject of the contract has not yet completed. It is unknown when the contract will complete because it is subject to the satisfaction of conditions precedent relating to third party consents.
The contract of sale is not before the Court, nor has it been examined by Mr Stavrou (applicant’s accounting expert) in formulating his opinions. Not having considered the contract of sale, Mr Stavrou is not in a position to determine the probabilities that such an executory contract would require an adjustment to the Company’s f inancial accounts. Even if the contract of sale did necessitate such an adjustment, this does not necessarily make the contract of sale itself a document of prime entry. It is the document that records the financial effect of the transaction the subject of the contract that constitutes the document of prime entry.
As correctly submitted by the respondents, a contract for the sale of property does not constitute a financial record “simply because it creates legal obligations that will have, or potentially have, a significant effect for the finances of the company”.
The contract of sale does not fall within the ordinary meaning of the term “financial records”.
Conclusion: The originating application is hereby dismissed.
