Company formalities: financial records Company formalities: financial records.

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.


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 incourt 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).


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.


Annual review

ASIC keeps a database of every Australian company and registered scheme.

Companies must inform ASIC of any changes to:

• 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


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.


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.


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).


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.


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.


Record keeping cont …

Important records a company or registered scheme must maintain include:

• 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.


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.


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.


Company registers cont …

The usual registers the Corporations Act 2001 (Cth) requires a company to keep are:

• 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)



• register of financial interest of members and staff (ASICA s 123)

• registers of financial services licensees and authorised representatives (s 922B).



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)).



Proprietary companies (even one-person companies) must inform ASIC of any changes within 28 days of changes to:

• 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.



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 thecompany 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).



A listed company must record ‘relevant interests’ held bya 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).


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.


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)


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


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 paymentand so on (Corporations Act 2001 (Cth) ss 1019C–1019K).


The financial records of the company

Statutory requirementsUnder 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.


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.



The financial records:

• 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



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.



Financial records:

• 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)).


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).



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

• 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).


Inspection of company records

Right to inspectThe 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:

• 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)).


Why seek an order to inspect?

• 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.


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 thebooks of the company (s 247D).


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


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.


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.


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)).


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)).


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).


Inspection of minutes cont …

The right to inspect minutes of directors’ meetingscan 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

Company formalities: financial records Company formalities: financial records.

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