Insurance & Reinsurance
This case concerned an application by Mr Furniss, a shareholder of Blue Sky Investments Ltd (Blue Sky), seeking an order to inspect 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 in May 2019, following a significant reduction in its share price after the release of a detrimental report by a research group. The report was highly critical of Blue Sky’s financial management, and in particular, the way in which the company valued its fee-earning assets.
Mr Furniss brought the application in the Supreme Court of Queensland seeking to inspect the books of Blue Sky to determine whether evidence existed to support a class action against Blue Sky. The proposed action would allege breach of the company’s continuous disclosure obligations and/or misleading or deceptive conduct. Mr Furniss sought to inspect various categories of documents including board minutes, audit reports and other general company documents. Of significance to insurers was the request to inspect;
“indemnity insurance policies that were current between the periods of 1 July 2015 to 30 June
2020 providing cover to Blue Sky or any director of officer of Blue Sky, including any cover
notes, certificates of insurance, policy schedules, standard terms and conditions and run off
The provision of the Act relevant to Mr Furniss’ application was section 247A, which provides that:
“(1) On application by a member of a company or registered scheme, the Court may make an order:
(a) authorising the applicant to inspect books of the company or scheme; or
(b) authorising another person (whether a member or not) to inspect books of the company or
scheme on the applicant’s behalf.
The Court may only make the order if it is satisfied that the applicant is acting in good faith and that the inspection is to be made for a proper purpose.
(2) A person authorised to inspect books may make copies of the books unless the Court orders otherwise”.”
The ultimate decision facing the court was whether, in bringing the application, Mr Furniss was acting in good faith and for a proper purpose.
The Court’s decision
The Court determined that the documents demanded by Mr Furniss were sought in good faith and for a proper purpose. As a result, judgment was entered in favour of Mr Furniss.
The court considered that “proper purpose” and “good faith” ought to be considered objectively, and that these tests would be satisfied in circumstances where a shareholder “demonstrates a case for investigation”.
Mr Furniss’ application was pursued for the purpose of determining whether Mr Furniss had a potential claim against Blue Sky or its directors and whether Blue Sky held insurance that may respond to such a claim. The court considered that these objectives would satisfy the requirements of s 247A of the Act, if it was determined that there was a case against Blue Sky to be investigated.
In this regard, the court found that there were not “merely the assertions of Mr Furniss which support a finding that there is a ‘case for investigation’. There is also substantial support for such a conclusion in the material of Blue Sky”.
Significance of the judgment
The decision of the court was based on the view that applications under s 247A of the Act do not require the determination of substantive questions of law. Significantly, the decision sets a precedent that it is sufficient for a shareholder to simply show that questions of law exist that amount to a “case for investigation”.
From an insurance perspective, the court determined that because the insurance documents requested by Mr Furniss directly concerned the ability to recover a judgment from Blue Sky, the application had been made in good faith and for a proper purpose. The court’s views on this issue were further supported by the fact that Blue Sky did not have substantial assets and its insurance position was therefore critical to the viability of a prospective proceeding by Mr Furniss.
Previous case law suggests that shareholders will more easily discharge the requirements of s 247A of the Act in circumstances where they have a significant shareholding in the target company and have been shareholders for considerable time. The court however did not consider this to be a relevant factor in Mr Furniss’ application and entered judgment in favour of Mr Furniss despite him owing less than 800 of Blue Sky’s 56 million issued shares. It is clear that the court’s focus when determining Mr Furniss’ application was on the purpose behind the relevant documents being inspected, rather than the position or circumstances of Mr Furniss as a shareholder.
In light of the court’s decision in this application, insurers can expect that similar s247A applications against their insureds are likely to result in an order allowing inspection of insurance documents. This is particularly so in circumstances were the insurance position is relevant to an applicant’s ability to be able to recover damages from the insured.