Digital documentation storage: easier and more cost-effective compliance

Posted: 30.03.09  |  Created by: Nick Abrahams

Electronic document retention – the legal perspective

This article is general in nature and should not be relied upon as a substitute for detailed legal advice. 

Almost all individuals and organisations in Australia are legally required to engage in some sort of document retention.  To satisfy their legal obligations, some businesses must retain a vast array of documents and other records.  In addition to these legal requirements, sound corporate governance demands that businesses fully and appropriately retain documents and records.  As business is carried out increasingly in the digital world, using electronic means to maintain records is simply the best practice.

Legal requirements for record retention

Although there is no general legal requirement for businesses to retain records in Australia, a number of specific statues require a range of documents to be retained for specified time periods (typically for 6 or 7 years after the matter to which the records relate has been finalised).  These documents range from financial records that correctly record and explain a businesses’ transactions and financial performance (including invoices, receipts, cheques, vouchers and working papers) under the Corporations Act 2001 (Cth), to records of employment relationships which must be maintained under various workplace relations laws.  Many of the statutory record retention obligations imposed on businesses require them to ensure those records are readily available.

The penalties for a failure to comply with record retention laws are serious.  In some cases directors of a company may face a prison sentence as a result of a company’s failure to adequately maintain records.  In addition to this, companies and individuals may also be exposed to heavy fines. 

Businesses should also be aware that government agencies are subject to very strict record keeping obligations, and that these may be passed on to businesses entering into contracts with government or quasi-governmental entities. 

To comply with the relevant statues, businesses must therefore ensure their document and record retention systems are capable of capturing all relevant documents and storing those documents, for many years, in a manner easily accessible.  When one considers the cost involved in printing, filing and physically storing data generated over a 7 year period, electronic document management systems are simply the better alternative.  

Compulsory production to a court or regulator

An appropriate electronic document management system is likely to be of even greater assistance where a business is compelled to produce documents by a court or regulatory body. 

The courts and regulators such as the ACCC, ASIC and ATO have broad powers to obtain documents and other records from businesses.  The ACCC, for example, has the power to require a business which it believes may have documents relevant to a possible contravention of the Trade Practices Act, to produce particular documents within a short time period.  The ACCC has the power to require a business to produce such documents, even if that business is not suspected of contravening the act.  The Supreme Courts of each state also have the power to issue subpoenas to businesses requiring production of documents which may be relevant to a matter before the Court. 

A business which has in place a good electronic document management system will be able to quickly search through its records to identify a complete set of the documents required by the court or regulatory body and to exclude other records which are not required to be produced. The business will then be in a position to quickly provide the documents to its legal advisers so they can identify documents protected by legal professional privilege (which it may not be necessary to disclose). 

Where a business is required to comply with an order for the production of records, effective electronic document retention and records management systems reduce the risk the business will:

1. incur costs by way of financial fines for failing to produce materials when required;
2. incur costs by way of financial fines by failing to store records as required by law;
3. lose privilege over documents being requested because the business does not have sufficient time to review all data before supplying the data in accordance with the order;
4. fail to comply with a request for documents and be found in contempt of court;
5. incur additional legal costs as a result of lawyers having to review an excessive amount of irrelevant or duplicated material; and/or
6. incur significant costs to employ external service providers to undertake due diligence each time the business receives a substantial request for information

Disputes

Businesses with good electronic document retention and management systems will also be better placed to provide evidence in the event of a dispute.  In any dispute, whether in court or pre-trial, it is often the party with the best evidence that will be successful. When a dispute arises, the party that is able to produce records that clearly support its case is in a good position to counteract the allegations made by the other party. In fact, often the dispute will be settled quite quickly if one side clearly has good quality evidence supporting its position. 

If a dispute proceeds to court, a business using sound electronic document and record retention processes will be best placed during the discovery process (during which a party to court proceedings makes all relevant records available for inspection by the other party). If records are not maintained in a way that allows them to be recovered and sorted quickly then not only will there be delays, but the costs associated with such searching (for example, legal costs on advising on the discovery of documents) can become very significant. 

In our view, businesses serious about being prepared for a dispute which may arise in the future should be using an electronic document and record retention process.
 
Conclusion

A business utilising an appropriate electronic document management and records system will usually be in a strong position to meet legal record keeping requirements, respond to orders for production of documents and deal with disputes. 

Nick Abrahams
Partner and Sydney Office Chairman
Deacons
nick.abrahams@deacons.com.au
http://www.deacons.com.au/

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