Shareholders’ right to information

One of the tell tale signs of a shareholders’ dispute occurs when those with the access to information restrict access to it for others.  It’s very common for us to see this.  There are several reasons why a shareholder may require company information, primarily where a minority or oppressed shareholder loses control and is removed as a director.  There may be reasonable suspicions that the company is financially unstable or the conduct is oppressive to its shareholders.  These scenarios mean that a shareholder is not being provided with the full information on whether they are being oppressed.  On its face the aggrieved shareholder may think that little can be done.  This is not the case as the Corporations Act 2001 (Cth) (Act) provides for various mechanism for minority shareholders to obtain relevant information from the company.  

 Access to the company’s constitution

Section 139 of the Act allows a shareholder to obtain the company’s constitution within seven (7) days of submitting a request in writing.  The company may charge the shareholder for providing this information however the amount must be reasonable.  If the company is governed by the replaceable rules as contained in Part 2B.4 of the Act the company must advise the shareholder of this.  The company’s constitution usually contains all of the rules and procedures that relate to voting of directors and at shareholders meetings.  Any aggrieved shareholder needs the constitution of the company in order to see what can be done about the acts of the directors depending on their situation.

Access to financial reports

A second option for obtaining information is for a shareholder to request a financial and directors’ report pursuant to section 293 of the Act.  This is achievable provided the request occurs within twelve (12) months after the end of a financial year and the shareholder has at least five per cent (5%) of the securities on issue.  This right to information is also limited to small proprietary companies.  Under section 45A(1)-(2) of the Act, a small proprietary company is one that satisfies at least two (2) of the following criteria:

• has less than fifty (50) employees;
• has a total revenue of less than $25 million; or
• has total gross assets valued at less than $12.5 million.

Consequently, shareholders do not have any recourse to reports under section 293 if the company is not a small proprietary company or if the shareholders has less than five per cent (5%) of the voting rights.

Authorisation by the Court to view company books

The last option an aggrieved shareholder can consider is to apply to the Court under section 247A(1) of the Act to obtain the company’s books.   According to Engel v National Biodiesel Ltd [2015] FCA 1114, a shareholder can apply to the Court to see the company books which are relevant to its investigation.  This case showed that company books include:

• documents owned by the company;
• financial reports or records;
• records of information; and
• registers.

On what grounds will the Court allow the shareholder to view the books?

A shareholder cannot make an application based purely on their suspicion surrounding affairs of the company.  Instead, the shareholder must prove they are doing this in ‘good faith’ and ‘for a proper purpose’.  This is normally shown where the shareholder is seeking information on known issues of corporate governance.  According to Hanks v Admiralty Resources NL [2011] FCA 891, a shareholder who has a large shareholding and or has been a shareholder for a significant amount of time has a better chance of succeeding in their application.

Cases involving what is “good faith” and “proper purpose”

Engel v National Biodiesel Ltd [2015] FCA 1114

Thorsten Engel (Plaintiff) was a member of National Biodiesel Ltd (Defendant) and made an application under section 247A(1) of the Act to obtain the company’s books from the Defendant as he was concerned about the legitimacy of transactions entered into by the Defendant.  The Plaintiff acted in good faith and for a proper purpose because he was investigating transactions which did raise legitimate concerns – the Defendant was shifting assets and this was adverse to the interests of the Plaintiff.  The Plaintiff was only entitled to view a description of the board papers, agendas for board meetings and board packs of the Defendant which related to the relevant transactions.

Hanks v Admiralty Resources NL [2011] FCA 891

David Hanks (Plaintiff) was a member of Admiralty Resources NL (Defendant) and made an application under section 247A(1) of the Act to access particular company books from the Defendant as he wished to investigate alleged director breaches.  The Plaintiff held 0.00005% of the Defendant’s issued capital and the current value of his shareholding was $1,710.00.  The evidence supported genuine concerns for director breaches, and the Plaintiff therefore acted in good faith and for a proper purpose, regardless of whether there were in fact director breaches.  The Plaintiff was permitted to inspect the majority of the books, though some categories were excluded.

Links and further references

Legislation

Corporations Act 2001 (Cth)

Corporations Regulation 2001 (Cth)

Cases

Acehill Investments Pty Ltd v Incitec Ltd [2002] SASC 344

Praetorin Pty Ltd v TZ Ltd [2009] NSWSC 1237

Hanks v Admiralty Resources NL [2011] FCA 891

Engel v National Biodiesel Ltd [2015] FCA 1114

Further information about shareholder oppression

If you need advice on shareholders’ rights or shareholder oppression, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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