Document retention and destruction: be aware of legal requirements
Found in: Blog
Document retention is, on its face, a rather dry subject. Nevertheless, it is one of considerable day to day significance for companies in Australia, and there may be serious consequences for mishandling the retention or destruction of particular documents. This article does not purport to exhaustively list all document retention requirements in Australia, but to set out some examples of these obligations to draw attention to the need to actively consider whether documents can be legitimately destroyed – before doing so.
There is no ‘one size fits all’ rule as to the period for which a company needs to keep its documents and records. In short, it depends on the type of document and whether the document might be evidence in any legal proceedings (existing or anticipated).
Common Law
At common law, the general position is that corporate documents are the property of the company and, as such, the company is entitled to deal with them as it sees fit. An exception arises where litigation has been commenced or is anticipated, in which case documents relevant to the litigation must be retained. As shown in the infamous McCabe tobacco litigation, the destruction of relevant documents by the opposing party, even before litigation has commenced, can be highly prejudicial to the party who would have relied on them. The Victorian Court of Appeal in that case held that, where a company destroys documents prior to the commencement of proceedings, the company may be exposed to adverse findings in proceedings once commenced (which may include striking out all or part of the claim or defence [1]) if the purpose of destroying the documents was to pervert the course of justice or was otherwise in contempt of court.
While this sets a rather high bar, companies should tread very carefully before destroying documents which could touch upon a potentially litigious area of its affairs, even if proceedings have not yet commenced.
Legislative Requirements
The common law position is modified by a multiplicity of legislation at both the State and Federal level as indicated in the following examples:
The Criminal Code 1913 (WA) and the Crimes Act 1914 (Cth) create similar offences where a person, knowing that any book, document or other thing of any kind is or may be required in evidence in a judicial proceeding, intentionally destroys it or renders it illegible or undecipherable or incapable of identification, with the intent of preventing it from being used in evidence.
The Income Tax Assessment Act (1936) (Cth) mandates that companies carrying on a business retain documents relevant to the company’s income and expenditure [2] for at least 5 years [3]. Failure to keep such records can incur an administrative penalty.
The Fair Work Act 2009 (Cth) requires that employee records be retained for a minimum of 7 years from the end of the financial year in which the document was created. The scope of ‘employee records’ is broad, and includes (for instance) documents that record matters such as the engagement, training, discipline, performance, conduct, resignation or termination of the employee, as well as his or her terms and conditions of employment, salary, taxation details and entitlements.
Companies may also have an obligation to retain documents relating to occupational health and safety matters, which may differ across jurisdictions and depending on the subject matter of the relevant record.
The National Privacy Principles (NPPs) also impact a company’s document retention and destruction policies, as companies subject to the NPPs must destroy or de-identify records containing personal information if the company no longer needs the personal information for the purpose for which it was collected, or for any purpose for which it may be used or disclosed.
The Privacy (Tax File Number) Rule 2015 [4] also requires companies to take reasonable steps to securely destroy or permanently de-identify tax file number information that is no longer required by law to be retained, or is no longer necessary for a purpose under taxation law, personal assistance law or superannuation law.
The Corporations Act 2001 (Cth) contains various document retention requirements depending on the type of document. For instance:
- companies must keep written ‘financial records’ (defined very broadly under the Act) for at least 7 years [5] after the transactions covered by the records are completed that correctly record and explain the company’s financial position and performance, and its transactions; and would enable true and fair financial statements to be prepared and audited. Failure to comply with this requirement is a strict liability offence [6].
- Retain certain company records, including minutes of members’ or directors’ meetings, resolutions passed at those meetings or without a meeting and, if the company has a sole director, any declarations made by him or her (Company Documents) for at least 5 years. The books containing the Company Documents must be kept at the company’s registered office, or at its principal place of business in the jurisdiction, or in another place within the jurisdiction as approved by ASIC;
- Retain registers of the company’s members [7], charges and option holders [8], for at least 5 years after the day on which the last entry was made in the register; failure to do so is a strict liability offence [9].
Australian laws provide for certain limitation periods for legal action, which make it advisable to retain documents for at least the limitation period (where otherwise not required by law).
The list outlined is by no means exhaustive, and other relevant legislation may include superannuation, competition, insurance and anti-money laundering legislation.
There are also restrictions on where and in what form documents must be kept. For instance, Financial Records may be kept outside the jurisdiction, if sufficient written information about those matters is also kept within an Australian jurisdiction to enable true and fair financial statements to be prepared [10]. If Financial Records are kept in electronic form, they must be convertible into hard copy [11].
The period for which documents must be retained depends on the type of document. Even if a document has been retained beyond the minimum statutory requirement, it is still subject to the common law test. As such, before destroying a particular document or class of documents, companies should actively consider and confirm that any relevant statutory requirement has been met, and that the document will not be required as evidence in any existing or reasonably anticipated proceedings.
A properly drafted document retention policy can greatly assist in achieving compliance with your document retention obligations.
FOOT NOTES
[1] Section 289, Corporations Act 2001 (Cth).
[2] Failure to comply is a strict liability offence under section 288(2) of the Corporations Act 2001 (Cth).
[3] British American Tobacco Australia Services Ltd v Cowell [2002] VSCA 197 [187]-[188].
[4] Specifically, companies carrying on a business are required to keep records that record and explain all transactions and other acts engaged in by the company which are relevant for any purpose under the Income Tax Assessment Act 1936 (Cth).
[5] Section 262A(4), Income Tax Assessment Act 1936 (Cth).
[6] Issued under section 17 of the Privacy Act 1988 (Cth).
[7] Section 1101C(2), Corporations Act 2001 (Cth).
[8] Section 286(4), Corporations Act 2001 (Cth).
[9] Section 169, Corporations Act 2001 (Cth).
[10] Section 170, Corporations Act 2001 (Cth).
[11] Section 1101C(1), Corporations Act 2001 (Cth).
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