The Western Australian Court of Appeal in the decision of Barboutis v The Kart Centre Pty Ltd [No 2] [2020] WASCA 41 clarified the wording of section 1274B(2) of the Corporations Act 2001 (Cth) (Corporations Act) which previously provides the admissibility of ASIC search results as evidence of the matters contained in the ASIC search results.
While this case concerned a for-profit company, it is still instructive for not-for-profit organisations of the importance of keeping good corporate records.
Facts
On incorporation of The Kart Centre, the directors were Mr Freeman and the Appellant’s son. Shortly after incorporation, an ASIC Form 484 was lodged recording the Appellant as a director of The Kart Centre and removing the Appellant’s son as director.
The shareholders of The Kart Centre entered into a Share Sale Agreement, where an entity associated with Mr Freeman was to purchase all of the shares from an entity associated from the Appellant.
The Appellant issued a letter of demand for an amount said to be owed by The Kart Centre to the Appellant. This amount was not paid. The Appellant then made an application to wind up The Kart Centre on the grounds that:
- the company was insolvent; or
- it was just and equitable as there was a deadlock in the management of the affairs of the company.
The Appellant had standing to seek an order on the grounds that he was a director of the company and that his entity was a creditor of the company.
Application
The Appellant’s submission was that on 12 December 2016 he was appointed as a director of the company and the ASIC records were evidence that he was validly appointed ‘unless proven to the contrary’. The Appellant relied on section 1274B(2) of the Corporations Act which provides:
(2) In a proceeding in a court, a writing that purports to have been prepared by ASIC is admissible as prima facie evidence of the matters stated in so much of the writing as sets out what purports to be information obtained by ASIC, by using a data processor, from the national database. In other words, the writing is proof of such a matter in the absence of evidence to the contrary.
The Court’s decision on this point ultimately came down to the interpretation of the words ‘evidence to the contrary’. Specifically, the effect of section 1274B(2) is that ASIC searches are prima facie evidence of the Appellant being appointed on that date. The Court is entitled to act on the prima facie evidence as proof in the absence of evidence to the contrary. The Court determined that the relevant question is whether there is evidence, not proof, to the contrary. In other words, evidence being adduced that is contrary to the ASIC search extract, the mechanism of the statutory proof as facilitated by the section ceases to have effect.
The Court found that the suggested ‘evidence to the contrary’ included:
- there was no signed or unsigned consent to act as a director of the company by the Appellant;
- there were no signed or unsigned minutes of meetings of the directors or the members or record of a resolution for the appointment of the Appellant as a director of the company; and
- there was no signed or unsigned ASIC form regarding notification of appointment of the Appellant as a director of the company.
The Court found that the absence of these documents constituted evidence to the contrary of the Appellant’s appointment as a director and the Appellant could therefore not rely on the ASIC search results.
Take home message
It is important that adequate records are kept of any appointment of a director, including:
- a consent to act as a director (signed by the director) (as required under section 201D of the Corporations Act);
- a signed board minute or circular resolution recording the appointment of the director (as permitted under section 201H of the Corporations Act); and
- adequate records of the ASIC Form 484 to be lodged (noting now that this form is submitted using the ASIC online portal) (as required under section 205B of the Corporations Act).
This is particularly important for not-for-profit organisations, with governance being a key issue in the sector.
The Court in forming the view set out above did not need to address any interaction between section 1274B(2) and the assumption under section 129 of the Corporations Act. Section 129 entitles a third party to assume in their dealings with a company that any person who appears, from information provided by the company that is available to the public from ASIC, to be a director or secretary, has been duly appointed and with the authority to exercise powers and perform the duties customarily exercised or performed by a director or secretary. It is, however, worth noting that any person seeking to rely on this assumption is prevented from doing so if at the time of the dealings they knew or suspected that the assumption was incorrect. The logical and practical implication that can be drawn from this decision is that a third person seeking to rely on this assumption would likely be prevented (or would find it substantially more difficult) if at the time of any relevant dealings, they were aware of all or some the matters raised as ‘evidence to the contrary’ surrounding the appointment of the any person seeking to represent that company.
For further information or discussion, please contact our Corporate Advisory and Governance team.