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Understanding A Director’s Rights: Inspection Of Accounting And Other Records







Section 245 of the Companies Act 2016 (CA 2016) provides for a company and for its directors and manager to keep and maintain accounting and other records at the registered office of the company or such other places as the directors think fit. These accounting and other records shall at all times be open for inspection by the directors. Further, the court also may by order allow an approved company auditor acting for a director to inspect the accounting and other records of the company.

 

This alert analyses the recent Court of Appeal case of Low Ean Nee v SNE Marketing Sdn Bhd [2024] 1 MLJ 447 where the Court of Appeal provided clarification on a director's right to inspect a company's accounting and other records under Section 245 of the CA 2016.

 

Background Facts

 

The respondent, SNE Marketing Sdn Bhd, was a multi-level direct marketing company which supplied food supplements, nutritional supplements and dietetic substances for medicinal use. The appellant, Low Ean Nee was one of the directors and shareholders of the respondent. However by a directors’ resolution dated 9 December 2021, the appellant was removed as a director of the respondent.

 

The appellant requested the respondent to provide to her the accounting and other records of the respondent (Documents) for inspection. The respondent was of the view that the appellant was using the statutory right under Section 245 of the CA 2016 to gain access to the respondent’s documents and to use the same to injure the respondent. Hence, the respondent stated that they were unable to provide the Documents for various reasons unless the appellant complied with the respondent’s request including to provide a covenant that she will not use the Documents for any ulterior and/or improper purpose that is detrimental to the interest of the respondent.

 

Following that, the appellant had filed an application before the High Court pursuant to Section 245 (Application), seeking an order for her to be allowed to inspect and make copies of the Documents.

 

The High Court Ruling

 

On 28 September 2021, the High Court dismissed the Application with costs on the grounds that the respondent has provided sufficient evidence to prove that the request for the documents was unrelated to the discharge of the appellant’s duties as a director, and was actuated by an ulterior motive, which would be detrimental to the interest of the respondent. The appellant filed an appeal to the Court of Appeal, where the issues on appeal were as follows:

 

(a)            Whether the High Court had erred in law in dismissing the Application?

 

(b)            Whether by reason of the principle that was enunciated by the Singapore Court of Appeal in Haw Par Bros (Pte) Ltd v Dato Aw Kow [1973] 2 MLJ 169, the appellant, being an ‘ex director’ (with effect from 9 December 2021), was not entitled to seek the statutory right of inspection under Section 245?

 

The Court of Appeal Ruling

 

The Court of Appeal explained the law in relation to a director’s right to inspect the company’s accounting and other records, as set out below:

 

(a)            It is trite that the right of a company’s director to inspect the company’s accounting and other records is a right existing at common law. Section 254 is  declaratory of such common law right of the director. A director is prima facie entitled to such right of inspection and is not required to demonstrate any particular ground or ‘need to know’ as a basis.

 

(b)            It requires a strong case to disentitle a director from the statutory right of inspection under Section 245 and the burden is on the respondent to establish positively by convincing evidence (and not just by making bald assertions or speculation).

 

(c)             There is no residual discretion in the court to refuse inspection by a director. However, the court can bar a director from exercising his right of inspection if the court is satisfied that the director’s intention is to use the information obtained for ulterior purposes.

 

Issue 1

 

Having due regard to the factual matrix of case and the conduct of the parties and the exchange of correspondence and affidavits, the Court of Appeal held that:

 

(a)            It did not see any evidence of intention by the appellant to injure the respondent. The respondent’s position in refusing to allow the appellant to inspect the documents was untenable.

 

(b)            The High Court had erred in dismissing the Application, and thus, such a decision of the High Court warranted appellate intervention on its part.

 

Issue 2


In the Haw Par case, the question before the Singapore Court of Appeal was, whether an order for inspection which had been made by a court under Section 167(5) of the Singapore Companies Act continues in full force and effect after the director of a company ceases to be a director? This case is relevant as Section 167(5) of the Singapore Companies Act is in pari materia with Section 167(6) of the previous CA 1965 and the Section 245(8) of the present CA 2016.

 

In this regard, the Singapore Court of Appeal ruled amongst others that:

 

(a)            Section 167(3) of the Singapore Companies Act gives an absolute right to inspect the accounting and other records required to be kept by a company and its directors under Section 167(1) only to persons who are the then directors of the company; and

 

(b)            Section 167(3) cannot be successfully invoked by an ex-director. Where an ex- director wishes to inspect such accounting and other records of a company, he cannot rely on Section 167(3) and must rely on other grounds because it is clear law that an ex-director, as such, has no proprietary, managerial or other similar interest in the accounting and other records of a company.

 

Coming back to Low Ean Nee, there was argument on whether the purported removal of the appellant as a director of the respondent was valid. In this regard, the Court of Appeal held that the present appeal was not the proper forum to deal with such issue and that it has to be taken up by way of separate proceedings. If and when the appellant succeeds in impugning her removal as a director of the respondent, she can then make a fresh application under Section 245(8) of the CA 2016 for inspection.

 

As a result, the Court of Appeal dismissed the appellant’s appeal, stating that until the appellant succeeds in impugning her removal as a director of the respondent, the Haw Par principle applies.

 

Conclusion

 

The Court of Appeal's decision in Low Ean Nee sheds light on the intricate balance between a director’s right to inspect company records and the potential risk for misuse of such information.

 

While it is trite law that a director has the right to inspect accounting and other records in the fulfilment of the fiduciary duties which he / she owes to the company, it is important for such right, akin to other rights and powers of a director, be exercised in the best interest of the company.

20 March 2024



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