Blue Sky books to be opened and interrogated
Court finds that shareholders are entitled to access documents to properly investigate liability.
This is a decision concerning an application by Mr Furniss, a shareholder of the respondent company, Blue Sky Investments Ltd (Blue Sky), to seek an order for inspection of the books of Blue Sky pursuant to section 247A of the Corporations Act 2001 (Cth) (Act). Blue Sky was placed into receivership and voluntary administration following a significant reduction in the value of its assets immediately after the release of reports by a research group which were critical of Blue Sky’s financial management and, in particular, the way in which the company valued its most important assets. The applicant wished to inspect books of Blue Sky, specifically investment and audit documents and insurance policies, in order to investigate the prospects of a class action against Blue Sky for misleading or deceptive conduct and/or breach of continuous disclosure obligations.
Section 247A of the Act provides that the Court may make an order authorising an applicant to inspect the books of a company if it is satisfied that the applicant is acting in good faith and that the inspection is made for a proper purpose. After canvassing relevant authorities, Crow J granted Mr Furniss’ application to inspect the relevant books of Blue Sky for the following reasons:
- the authorities demonstrate that ‘proper purpose’ means a purpose connected with the proper exercise of the rights of a shareholder as shareholder;
- in relation to the investment and audit documents, his Honour observed that pursuing a reasonable suspicion of breach of duty is a proper purpose. It is not necessary that the applicant have sufficient evidence to bring or make out the action; it is enough that the issue raised by the applicant is ‘substantive and not fanciful’. His Honour was satisfied that there was “a case for investigation”, not just because of the substantial reduction in the value of the applicant’s shares, but also because Blue Sky’s market updates raised issues concerning transparency and proper disclosure. His Honour accepted that the applicant was pursuing a reasonable suspicion of breach of duty and that it was appropriate that the investment and audit books be inspected;
- in relation to insurance policies, his Honour found that it was a laudable objective for Mr Furniss to seek production of these documents to better inform himself as to:
- whether it is commercially viable to prosecute a group proceeding;
- whether it is appropriate to settle the matter, and if so, for what quantum; and
- the extent of the indemnity potentially available which may reasonably inform the nature and extent (and costs) of future group or representative proceedings.
In his Honour’s view, as a matter of principle, if a shareholder of a company is entitled to documents to properly investigate that and other shareholders’ prospects of establishing liability in respect of any wrongdoing by a company, its officers or auditors, it is also legitimate to examine not only the potential quantum of such claim but its realistic prospects of recovery.
Furniss v Blue Sky Alternative Investments Ltd  QSC 46
Supreme Court of Queensland, Crow J;
19 March 2021;
Applicant’s Solicitors: Piper Alderman;
Respondent’s Solicitors: Gilbert+Tobin;
Applicant’s Funder: LCM Operations Pty Ltd;
Austlii Link: Accessible here
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