Every corporation and virtually every person keeps records, both personal and business. In fact, in today’s society there is a tendency to make multiple copies of everything and to put them in “the file” where they will form part of “the record” (and in drawers, cabinets and so on, they will be readily available for reference). But have you ever wondered why you are keeping records and how they will be of use to you?
Dumb question! Everyone knows that records record events so that we can go back and see what the history of the matter was. If that is the case, then obviously everyone should have a recordkeeping system that lets the reviewer be selective and obtain all the appropriate data and that is, above all, complete. This is one, but only one, of the uses to which records can be put. Business records should be of use for other related purposes, such as:
* giving an overview of operations and events for general purposes;
* recording detailed events relating to a specific project or course of events;
* providing source information for future operations;
* making necessary information available to a third party; or
* protecting your butt.
With these and any other purposes that come to mind, records and recordkeeping systems should be looked at closely and critically. Can your records meet your requirements? For example: You are the operator of a joint venture, but you also carry on an active exploration business both in the vicinity of the joint venture and elsewhere. As in the case of most joint-venture agreements, the participants have a right of access to the joint-venture records. Accordingly, the operator’s recordkeeping system must permit this in a manner convenient to both itself and the participants. Joint- venture records must be segregated from other corporate records of the operator; they must be complete and must be readily available, all without having to root through a number of unrelated, and possibly confidential, files. Information must be made available in a manner that does not permit the participant to see, or get a glance at, other data or records not related to the joint venture. It is best to have an office available for participants and to bring the files to that office for review. It is also advisable, insofar as is possible, to have the same technical person review the information with participants so that the presentations are consistent and so that there is at least one person in the operator’s organization who has the whole story — the operator should keep a record of a participant’s visit, indicating what was seen and discussed. If things are less than friendly, have two people present for the review and presentation (each should make his own separate notes of what happened at the meeting so that they can independently support each other if the need arises).
It is essential that the operator be thoroughly familiar with and understand the terms of the joint-venture agreement, including the boilerplate, such as the right of access to records. It is this provision that will dictate how records should be kept. For example, many agreements provide for access to data only and not interpretive materials. Accordingly, records for this type of agreement will have to separate data from interpretation done by the operator for its own purposes. Unfortunately, the tendency is to want the back-up materials readily available with the interpretative materials — this often means in the same file. This tendency, if allowed to flourish, can result in some serious problems for the operator.
It is often a good idea to keep separate joint-venture files and corporate (or internal) records dealing with the same venture, even at the cost of duplication. The joint-venture files will be kept in strict compliance with the governing agreement, while the internal ones will contain data and information relating to the venture that the operator has for its own purposes and which are kept in the manner that the operator wishes. It should not need saying that considerable care must be taken to keep both sets of records up to date and complete and that originals of information paid for by the joint venture must form part of the joint-venture records. It is also a good idea to have records bear a notation of the date of the most recently filed materials. Arrangements such as these, with appropriate modifications, will permit the operator to give effect to special provisions in the governing agreement which might limit a participant’s access to certain information, such as a situation where access is denied to information compiled during a period when a participant is in arrears or default of payments.
Segregation of records can be not only convenient but essential in circumstances where flow-through funds (such as they may be nowadays), grants or subsidies are the source of funds. The parties contributing such funds will want the expenditures justified and possibly audited. In addition, there is always the danger of running afoul of some legal requirements and receiving a visit from an inspector, or even the police, requiring the production of information relating to a specific matter. In any of these circumstances, the ability to make available full and complete records on a specified matter without having to weed it out from other non-relevant records will not only save time but can avoid the potential of the visitor doing a little “fishing” — remember that, if served with an order or other document requiring production of records, you are only required to produce those records described in the order or other document (see Law article entitled “The Inspector Knocketh,” TNNM, July, 1988). There are instances where a subpoena requiring production of ducuments relating to a specified matter has given officials access to other unrelated records (through poor recordkeeping procedures or ignorance on the part of the recipient) and proceedings have later been taken on the unrelated matters.
Another concern to address with respect to records is their completeness. Will the records satisfactorily verify calculations or expenditures? Will they answer questions like, Why did you proceed in that manner? or Where did that provision in the agreement come from (a question that a lawyer may well be asked and one that he can answer by going through his copies of early drafts of the agreement and his notes and correspondence)?
The above comments have, for the most part, been addressing joint ventures and operators. Obviously, they are equally applicable to any business undertakings. In short, probably any old recordkeeping system will do the job so long as things are working smoothly, but as soon as something goes amiss, you want to be able to isolate the problem, go to your files and deliver up relevant, complete and accurate information on the problem area, and only the problem area. In such circumstances, forethought and planning plus a tolerance for some nuisance will pay high dividends.
By the way, about those extra copies referred to above and kept for “easy access” — file them in the waste basket (or in the proper file if that is appropriate). The “drawer file” will not be complete and, surer than blazes, the draft that is in that “file” will not be the current one.
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