How can a shareholder of a business corporation effectively seek information?

5.2.2024

The Business Corporations Act is quite clear about providing information about the company in which you have an interest. As a shareholder of a corporation, you are entitled to request and receive an explanation of matters relating to the corporation. You may also request such an explanation in writing. But how to proceed if the statutory body does not communicate with you or otherwise obstructs this obligation?

Have you found yourself in a situation where a company in which you have a shareholding refuses to provide you with information about its operations, debts and liabilities, or provides incomplete information and you feel that this may be a deliberate concealment of information about the true state of the company? As mentioned above, you are entitled to the information in question, but beware! The deadlines for filing a lawsuit are very short.

We recently handled a similar case and even in these situations we can handle the matter and effectively pursue the information on behalf of the client.

What if the company is avoiding compliance?

It is not uncommon for a minority shareholder of a company, whose rights are primarily intended to be protected in this way, to seek information regarding the internal workings of the company and the company's debts and liabilities, as well as other important information necessary to assess the state of its assets.

If a shareholder does so by means of a written request in which, for example, he seeks documents relating to contracts under which the company has incurred claims against related parties (e.g. members of the statutory body), as well as minutes of general meetings at which the company's general meeting was informed of the conclusion of such contracts, and other documents relevant for the examination of the company's financial situation, in particular detailed documentation showing the manner and amount of remuneration of the company's management, the company is obliged to respond to such a request.

Provided that the company responds to such a request, but only partially complies with the shareholder's request by providing incomplete, vague and factually unsupported information, or by refusing to disclose certain information on the grounds that it is private information, the company cannot properly fulfil its information obligation.

The Companies Act imposes quite strict requirements on the content of the explanations.

For comparison, "A shareholder shall be entitled to request and receive from the company at a general meeting an explanation of matters concerning the company or persons controlled by it, if such explanation is necessary for the assessment of the content of the matters put before the meeting or for the exercise of his shareholder rights at the meeting" and

"The information contained in the explanation must be certain and must give a sufficient and true picture of the fact under question."

It is important to note that there are only two statutory grounds on which a company may refuse to provide information or documents to a shareholder, where the grounds may be that the information requested is - by reason of a requirement of law, not an arbitrary decision of the company - confidential, or that the information requested has already been disclosed (is public). Thus, a company cannot refuse to provide a shareholder with information, for example, because it is of a "personal nature".

An explanation that does not meet these requirements is therefore not an explanation in accordance with the law. It should be added that these conclusions are applicable to shareholders of public limited companies as well as to shareholders of limited liability companies.

If the company does not provide an explanation at all, or if the explanation does not meet the requirements as to its content, the shareholder may seek to have the obligation to provide an explanation imposed on the company by the court.

Beware of short deadlines

In this respect, it is important to mention the one-month limitation period in case of failure to exercise the right in court. This means that if you do not assert your rights before the competent authority within one month from the date of the refusal to provide an explanation or the receipt of an explanation that does not meet the requirements of its content, the enforceability of your right is extinguished. In this respect, it is particularly important to note that the time limit may start to run differently for different information requested - the relevant information is always the first refusal or failure to provide it properly by the company.

Thus, if the company fails to respond properly to a shareholder's legitimate inquiries, it is essential to watch the timeliness of filing a lawsuit against the company. Thus, timely securing legal counsel may play a key role in this case.

It is not an unusual conclusion in this regard that the company will succumb to the pressure of an already filed lawsuit and will subsequently voluntarily provide the necessary information.

The timely filing of such an action, if necessary, is also important in terms of safeguarding the rights of the shareholder, which are linked to the provision of the requested information. In fact, there is no limitation period for the exercise of such rights while the action is pending.

If, for example, the statutory body of a company has caused damage to the value of a shareholder's shareholding by concluding unfavourable loan agreements between itself and the company, without the filing of the information action described above, the limitation periods for the assertion of such a damage claim would begin to run without the shareholder being able to assert his claim due to the lack of specific information and documents. If, however, the information claim is filed in time, even in relation to that information, the shareholder will be assured that his claim for damages will not become time-barred until it is resolved.

Conclusion

The Corporations Act sets out clear obligations for companies to provide information to their shareholders. If you feel that your rights as a shareholder have been breached and the company is not complying with its information obligations, you should act within the law to ensure that you can effectively protect your rights and interests within the company in which you are a shareholder.