Director and shareholder disputes over company information rights

It’s not uncommon for a dispute relating to the management of a company to arise from a controversial exercise of control over access to company information. Often, it becomes a tug of war over the storytelling documents and records of the company.

The reasons for refusing to provide access to company information are varied. They may stem from a fear that something confidential, sensitive or revealing will be let out of the bag when information passes into untrusted hands. They may be as basic as a disagreement over a legal right or entitlement to the information concerned. Is the individual in the camp of those entitled, or not?

Perhaps most commonly, however, a dispute over information rights is a symptom or collateral dynamic of a wider fight over ownership and control of the company.

Directors’ rights to company information

Where a request for information comes from a director of the company, an insider, the legal position is clear. A director has a right to be informed about the company’s affairs. They also have a right to inspect the company’s books and records for the purpose of enabling them to perform their duties.

That right is defined by its purpose. The court will not come to the aid of a director who seeks to exercise it for an improper purpose. This is often where battle lines are drawn between contesting camps. The court will, however, assume that a director is exercising their information rights for a proper purpose. It’s for those challenging the exercise of the right to persuade the court, with evidence, that the right is being abused.

Shareholders and access to information

Where the interest of the person seeking access to company information is solely that of share ownership (here, a shareholder of a private limited company), the issue has more facets.

Under the Companies Act 2006, a shareholder has a statutory right to key accounting documents, including the company’s last accounts and the strategic, directors’ and auditors’ reports. They are also entitled to documents associated with the convening of general meetings, such as notices, resolutions and associated statements, and to inspect certain key statutory company records and registers (on payment of a fee).

The Act and associated regulations don’t, however, give shareholders a right of access to the minutes or other records of management meetings, including board meetings. Nor do they provide a right to contemporary financial information used for management purposes, such as management accounts, or to copies of the company’s contracts or communications.

Indeed, the articles of association – the terms of the contract between the company and the shareholder – may expressly provide that these statutory rights set the limit of shareholder entitlement to company information.

Why shareholders’ agreements matter

These limitations may not be the right fit for the company’s investment and governance model. There may be good reason for information rights to form part of the investment bargain agreed on the acquisition or issue of shares.

A right to involvement in the company’s management should be supported by an appropriate right to information. There may also be a case for committing to periodic reporting to a shareholder, even where that investor is not appointed to the board.

The appropriate place for such rights is a documented shareholders’ agreement, and clarity in how these rights are framed is important. Where no documented shareholders’ agreement exists, the routes available to a shareholder seeking access to company management information are problematic. Much will depend on whether the court’s equitable jurisdiction responds to the facts of the case, or whether disclosure of documents can be leveraged through court procedures.

Either way, the process is likely to be expensive and the outcome uncertain. The case for clearly defining information rights in a shareholders’ agreement is, therefore, a compelling one.