Company
formalities:
financial records
Corporate Law: Law principles and practice
The registered office
Every Australian company must have a registered office,
even if it is the same as their home, or accountant’s office.
If the company’s business is not actually located at (or
working from) its nominated address, ASIC must be
informed (Corporations Act 2001 (Cth) s 146).
The occupant at the nominated address must consent in
writing (s 143) if its premises are being used for company
purposes (s 143(1)).
ASIC must be informed of its registered office (s 121).
An address must be a physical location.
Records of the company must be held at the address.
Corporate Law: Law principles and practice
The registered office cont …
A document may be officially served on a company by
leaving it at or posting it to a company’s registered office;
proof of this service is sufficient as evidence in
court of the company receiving the document
(Corporations Act 2001 (Cth) s 109X)
ASIC must be updated on a company’s change of address
(s 142(2)), or any change to its principal place of business
(s 146).
Corporate Law: Law principles and practice
The registered office cont …
Under s 145(1) of the Corporations Act 2001 (Cth), unless
ASIC is informed otherwise (s 145(3)), the registered
office must be open to the public:
• from 10 am to 12 noon and from at least 2 pm to 4 pm;
or
• for at least 3 hours chosen by the company between 9
am and 5 pm each business day:
A company can be prosecuted by ASIC for not having an
accessible registered office.
Corporate Law: Law principles and practice
Annual review
ASIC keeps a database of every Australian company and
registered scheme.
Companies must inform ASIC of any changes to:
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the registered office address
the principal business office address
the ultimate holding company
details of the director(s) and secretary
the company’s share structure
members’ personal details
members’ share holdings
Corporate Law: Law principles and practice
Annual review cont …
A company now updates ASIC through a notice called the
‘annual review’.
A company can lodge their annual review electronically.
ASIC sends every company an ‘extract of particulars’
and an invoice for its annual fee (Corporations Act 2001
(Cth) s 346A).
Any changes to directors, name, address, major
shareholdings or issue of shares need to be communicated
to ASIC.
If no changes occur, no notice is required.
Corporate Law: Law principles and practice
Annual review cont …
A company must send in its annual fee, irrespective of the
need to actually send in information.
ASIC can demand a ‘return of particulars’ if it believes
the details are incorrect.
The annual review serves the purpose of informing ASIC
that the company is still ‘alive’ and operating.
Information supplied enables a public record to be kept.
Corporate Law: Law principles and practice
Solvency resolution and the annual review
Large proprietary companies and public companies
include a solvency declaration in their financial reports
(Corporations Act 2001 (Cth) s 295(4)(c)).
Other companies must, within two months of the review,
pass a solvency resolution (s 347A).
Corporate Law: Law principles and practice
Solvency resolution and the annual review cont …
Under s 95A of the Corporations Act 2001 (Cth), a
corporation is insolvent when it is unable to meet its debts
as they fall due, so the solvency statement confirms that
the company will meet its future debts and obligations.
Directors need only inform ASIC if the solvency
declaration is negative or cannot be made at all (s 347B).
Otherwise, the payment of the annual fee by the company
is a representation to ASIC of its solvency.
Corporate Law: Law principles and practice
Record keeping
Every company must have some form of record keeping
and some means of keeping a continual account of the
affairs of the company.
What records must be kept and the manner in which
information is recorded and collected is determined by
ASIC, AASB and the Companies Auditors and
Liquidators Disciplinary Board.
Small companies have very few regulations compared to
large, listed companies.
Corporate Law: Law principles and practice
Record keeping cont …
Important records a company or registered scheme must
maintain include:
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the financial records of the company (receipts,
payments, borrowing and asset holdings) from which
financial reports can be produced (Corporations Act
2001 (Cth) s 286(1))
specific registers with details of the company’s
members (s 168(1))
a record of resolutions passed at different meetings
(the minutes)
a record of the company’s most important officers.
Corporate Law: Law principles and practice
Record keeping cont …
ASIC can exempt a company from complying with the
usual recording and financial reporting requirements if
this imposes an unfair burden on the company.
ASIC performs a significant role regarding the record
keeping of companies, storing records of each company
on its database ASCOT, and maintaining a document
image system called DocImage that can be accessed
online by the public.
Corporate Law: Law principles and practice
Company registers
On registration, every company is required to maintain
particular registers of certain matters relating to the
company (Corporations Act 2001 (Cth) s 168(1)).
Company registers are public records that are open to
public scrutiny.
The registers must be kept at the company’s registered
office, its principal place of business or at a place in
Australia unless ASIC approves a different place.
Corporate Law: Law principles and practice
Company registers cont …
The usual registers the Corporations Act 2001 (Cth)
requires a company to keep are:
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the members’ register (shareholder register), which
records the details of each member holding shares (s
169), including their names, address and the date on
which they became members
registers of options on unissued shares (s 170)
register of debenture holders (s 171)
register of company auditors (s 1285)
register of liquidators and official liquidators (s 1286)
register of company charges (s 265)
register of disqualified company directors and officers
(s 1274AA)
Corporate Law: Law principles and practice
Company registers cont …
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register of financial interest of members and staff
(ASICA s 123)
registers of financial services licensees and authorised
representatives (s 922B).
Corporate Law: Law principles and practice
Company registers cont …
A holder of shares can enforce their rights as a member, if
registered.
Registers must be kept up to date, and must not be out of
date for more than five days.
ASIC must be informed of any change in the location of
the register (Corporations Act 2001 (Cth) ss 172(2)).
Corporate Law: Law principles and practice
Company registers cont …
Proprietary companies (even one-person companies) must
inform ASIC of any changes within 28 days of changes to:
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issued shares, including the number, classes of shares
and amounts paid and unpaid on each share
(Corporations Act 2001 (Cth) s 178C)
the largest 20 shareholders, including their names and
addresses and other changes that have occurred (ss
178A–B)
the company’s ultimate holding company (ss 349A–
D); under 349A, ASIC must be informed if there is a
change in the holding company of the company in 28
days.
Corporate Law: Law principles and practice
Company registers cont …
The share register (or members’ register) is important because
it is proof of membership in the company (Corporations Act
2001 (Cth) s 231).
If a person’s name does not appear on the register, they are
presumed not be a member and do not have the rights
attributed to a member, such as the right to enforce the
company constitution (s 140(1)) or to bring an action for
oppression (s 232).
A correction of the register can be ordered if a name has not
been entered into the register, or has been entered incorrectly (s
175) (see chapter 6).
All registers are evidence of rights held by those named in a
register (s 176).
Corporate Law: Law principles and practice
Company registers cont …
A listed company must record ‘relevant interests’ held by
a person in the shares of the company (Corporations Act
2001 (Cth) s 672AD).
A party may have direct or indirect power over a share,
allowing them to control votes that might be taken (and
which may be relevant in takeovers, for example).
Corporate Law: Law principles and practice
Company charges
A charge is the process whereby a company designates
some company property as security for a creditor of the
company; the creditor can take that property in the event
of default by the company.
Corporate Law: Law principles and practice
Inspection of the registers
The public has the right to inspect company records,
including annual reports held by ASIC (Corporations Act
2001 (Cth) s 1274A), for a fee (s 173(3)).
A party whose details are recorded on a register will not
be charged (s 173(1)).
Residues Treatment and Trading Co Ltd v Southern
Resources Ltd (1989) 52 SASR 54)
Corporate Law: Law principles and practice
Inspection of the registers cont …
The right to inspect the books of a company is enforceable
(Corporations Act 2001 (Cth) s 1303) by a court if it
believes the inspection is required for a reasonable purpose.
A company does not have to disclose information in any
particular format, and the company can refuse an inspection
if the inquirer’s purpose is improper (e.g. to make offers to
members to purchase their shares) (s 177).
O’Brien v Sporting Shooters Association of Australia
(Victoria) (1999) 17 ACLC 1624
Westgold Resources NL v Precious Metals Australia Ltd
[2002] WASC 221
Corporate Law: Law principles and practice
Inspection of the registers cont …
National Exchange Pty Ltd v Australian Securities and
Investments Commission [2004] FCAFC 90
Any unsolicited off-market offers for shares must clearly
state the terms of the offer, the price and terms of payment
and so on (Corporations Act 2001 (Cth) ss 1019C–
1019K).
Corporate Law: Law principles and practice
The financial records of the company
Statutory requirements
Under s 286(1) of the Corporations Act 2001 (Cth), a
company must, on registration, establish a system for
recording its financial transactions in the form of financial
records, defined under s 9 of the Act to include:
(a) invoices, receipts, orders for the payment of money, bills
of exchange, cheques, promissory notes and vouchers;
and
(b) documents of prime entry; and
(c) working papers and other documents needed to explain:
(i) The methods by which financial statements are made
up: and
(ii) Adjustments to be made in preparing financial
statements.
Corporate Law: Law principles and practice
The financial records of the company cont …
Section 9 of the Corporations Act 2001 (Cth) defines
‘books’ as including registers, records of information,
financial reports and records (however compiled) and
documents.
This is a wider definition that incorporates financial
records.
Corporate Law: Law principles and practice
The financial records of the company cont …
The financial records:
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must correctly record all the transactions of the company
(Corporations Act 2001 (Cth) s 286(1))
must be kept in such a manner that (true and fair)
financial reports can be prepared as required
can be kept in various forms (s 1306), including in an
electronic form that is capable of being converted to a
hard copy (s 288).
The financial records will be kept in the most appropriate
form for the type of business being carried on.
Australian Securities Commission v Fairlie (1993) 11 ACLC
669
Corporate Law: Law principles and practice
The financial records of the company cont …
Directors’ liability for contraventions of s 286(1)
Directors who contravene s 286(1) of the Corporations
Act 2001 (Cth) commit an offence (s 344(1)), and may
incur a civil penalty under pt 9.4B and a general penalty
under s 1311.
Corporate Law: Law principles and practice
The financial records of the company cont …
Financial records:
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can be kept anywhere (Corporations Act 2001 (Cth) s
289(1)), including overseas, but sufficient records
must be available for preparation of reports (s 289(2)).
can be required by ASIC to be produced if kept outside
of Australia
can be kept in any language (s 287(1)), but must be
translatable into English (s 287(2))
must be retained for seven years from the date of the
transaction (s 286(2)).
Corporate Law: Law principles and practice
The financial records of the company cont …
Under ss 292–3 of the Corporations Act 2001 (Cth), ASIC
can require a company to produce any financial records.
Under s 29 of the Australian Securities and Investments
Commission Act 2001 (Cth), a ‘book’ (including financial
records) that is required under the Corporations Act 2001
(Cth) must be open for inspection without charge by a
person authorised in writing by ASIC.
ASIC can force any record to be produced for inspection
under s 1(2)(g) of the Australian Securities and
Investments Commission Act 2001 (Cth), and ASIC can
take whatever action it sees fit in order to enforce and give
effect to the Corporations Act 2001 (Cth).
Corporate Law: Law principles and practice
Insolvency and the keeping of records
If a company does not properly establish or retain
appropriate financial records, it is presumed to be
insolvent (Corporations Act 2001 (Cth) s 588E(4), and
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directors may be liable (s 588G).
a holding company will be liable for the debts of its
subsidiary if it trades while insolvent (s 588V).
Corporate Law: Law principles and practice
Inspection of company records
Right to inspect
The right to inspect financial records is set out in s 291 of
the Corporations Act 2001 (Cth), which designates that
the parties who can access the records are:
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members, who can apply to court for the right to
inspect (s 247A)
the company auditor (s 310)
the company controllers (s 431)
ASIC under ss 28–29 of the Australian Securities and
Investments Commission Act 2001 (Cth); it can also
order a company to produce financial records outside
of Australia (s 289(3)).
Corporate Law: Law principles and practice
Why seek an order to inspect?
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for evidence in order to mount a statutory derivative
action (s 237)
to bring or defend an action for a breach of directors’
duties (ss 180–183)
to make relevant management decisions
to approve the financial reports, in the case of an
auditor
The right of inspection must be in good faith and not
amount to an impractical exercise for the company.
Under ss 13–15 of the Australian Securities and
Investments Commission Act 2001 (Cth, a member may
seek the intervention of ASIC to instigate an investigation.
Corporate Law: Law principles and practice
The right of members to inspect
Members of a company (including members of registered
scheme) are entitled to receive a copy of the company’s
financial reports (Corporations Act 2001 (Cth) ss 314–15).
Members can apply to a court for an order allowing them (or
their nominee) to inspect the books of the company (s
247A).
A court can make ancillary orders it believes are appropriate
to limit the use of information gained from an inspection, or
limit what copies can be made of information gained (s
247B).
The directors of the company in a general meeting with a
general resolution may authorise a member to inspect the
books of the company (s 247D).
Corporate Law: Law principles and practice
The right of members to inspect cont …
A court will only grant the application to inspect to a
member if the action is made in good faith and for a
proper purpose (e.g. to bring an action for a statutory
derivative action under s 237 of the Corporations Act
2001 (Cth).
Knightswood Nominees Pty Ltd v Sherwin Pastoral Co
Ltd (1989) 7 ACLC 536
Cescastle Pty Ltd v Renak Holdings Ltd (1991) 9 ACLC
1333
Re Humes Ltd (1992) 10 ACLC 538
Corporate Law: Law principles and practice
The right of the receiver to inspect
If a company is in receivership, a receiver has the right to
take possession of the books of account; this would
normally be granted under the deed of appointment.
The appointment of the receiver does not negate a
director’s right to inspect the books.
Corporate Law: Law principles and practice
The right of the company auditor to inspect
A company auditor has the right to inspect its accounting
records and registers at all reasonable times (Corporations
Act 2001 (Cth) s 332(5)), and call for further information
for the purposes of an audit.
Corporate Law: Law principles and practice
The right of the director to access financial records
A director (of a company, registered scheme or disclosing
entity) has the right to access the financial records at all
reasonable times (Corporations Act 2001 (Cth) s 290(1)).
Corporate Law: Law principles and practice
Restrictions on a director’s right to inspect
Access may be denied if the director intends to misuse the
information or if the inspection would materially harm the
company.
Deluge Holdings Pty Ltd v Bowlay (1991) 9 ACLC 1486
A court can give an order for a person to inspect the
financial records on behalf of, and at the request of, a
director (Corporations Act 2001 (Cth) (s 290(2)).
A court can make orders allowing for copies to be made of
financial records (s 290(3)).
Directors have the right to inspect the books of a company
at all reasonable times if there are any legal proceedings
against them (s 198F(1)).
Corporate Law: Law principles and practice
Inspection of minutes and the company constitution
A member has the right to obtain a copy of the company’s
constitution, although a fee might be charged for this
(Corporations Act 2001 (Cth) s 139).
Public companies must lodge with ASIC a copy of any
special resolution adopting, modifying or repealing its
constitution (s 136(5)) and this can be inspected as part of
ASIC’s records.
Members have the right to inspect minutes of general
meetings and to obtain copies of such for a payment of a
fee (s 251B).
Corporate Law: Law principles and practice
Inspection of minutes cont …
The right to inspect minutes of directors’ meetings
can be denied when this gives away valuable company
information of a commercial nature.
R v Maiquita and New Granada Mining Co (1858) 1 E &
E 289