Shareholders’ right to access the company’s financial information
As a shareholder of a company, if you discover the company conducting suspicious transactions or suspect mismanagement of the company, you would certainly want to inspect the company’s financial information to clear your doubts and ascertain the facts. However, do you have sufficient legal grounds to request access to company records?
Typically, shareholders have the right to access a company’s books and records, but these rights are not automatic, and may be subject to the company’s constitution as well as laws and regulations. The specific scope of rights and procedures are usually outlined in the company’s constitution or shareholders’ agreement. Generally, shareholders have the right to access important documents of the company including financial statements, meeting records, contracts, and records of share transactions.
1. Preliminary Communication
As a first step, shareholders should submit a written request to the company/board of directors to access the company’s books. In the written request, shareholders should clearly state:
- the purpose of accessing the books;
- specify the exact documents the company needs to provide.
If the directors are unwilling to cooperate, shareholders may need to consider the following legal avenues to compel the directors to provide the documents.
2. Section 247A Corporations Act 2001
Australia’s Corporations Act provides company shareholders the right to inspect company books and records. These rights allow shareholders to better understand the company’s operations.
The Corporations Act defines the word “books” broadly:
- a register;
- any other records of information (such as records of directors’ meetings);
- financial reports/records;
- a document.
If there is a need to obtain such documents, shareholders may apply to the court for inspection under section 247A of the Corporations Act 2001 (hereinafter referred to as the 247A Application). However, the applicant must prove that they are acting in good faith and that the inspection is to be made for a proper purpose. The application cannot be motivated primarily by curiosity, extortion, or revenge.
Shareholders may seek access to the company books under the following circumstances:
- suspected misappropriation of assets;
- suspected excessive directors’ compensation;
- unaccounted dividends;
- taxation discrepancies;
And so on.
Additionally, if the actions of the company or its directors involve oppression, unfair prejudice, or unfair discrimination against shareholders, shareholders may apply to the court for a proceeding on the grounds of shareholder oppression.
3. Section 232 Corporations Act 2001
The premise for making an application under section 232 of the Corporations Act (hereinafter referred to as the 232 Application) is that the applicant is a current or former minority shareholder. While minority shareholders do have some authority, they cannot exert ultimate control over the company if they do not hold the majority of the company’s shares.
Generally, minority shareholder oppression includes the following actions:
- contravention of the interests of the shareholders as a whole; or
- oppression, unfair prejudice, unfair discrimination against a shareholder or various shareholders; or
- directors depriving you of the ability to access the company's books and records as a shareholder; or
- exclusion of you as a shareholder from the company's operations.
Under the 232 Application, the court can make any order that it considers appropriate to remedy the shareholders, including:
- winding up a company; and/or
- modifying or repealing the company’s existing constitution; and/or
- directing the company to purchase shares from shareholders by reducing its share capital; and/or
- requiring a person to do a specific act.
4. Directors’ response
From a director’s perspective, granting early access to inspect the company’s books and records upon receiving a written request from shareholders may be appropriate. This approach can save time, costs, and prevent unnecessary disputes. Directors should consider the following:
- The purpose of the shareholder requesting inspection of the company’s books and records:
- As discussed above, the shareholder applicant must prove good faith and a proper purpose.
- The scope of documents requested by shareholders:
- Directors can consider providing documents directly related to the purpose for which the inspection is requested. If the shareholder subsequently makes a 247A Application, the court has discretion to decide which documents are relevant to the applicant’s purpose.
- Confidentiality of documents or legal professional privilege:
- Confidentiality of document or legal professional privilege refers to the possibility that documents may contain sensitive information protected by legal professional privilege. This means that in certain situations, the law may prohibit or restrict the disclosure of these documents or information.
Directors should not unreasonably refuse shareholders’ requests. If the court finds for the shareholder’s application to inspect the company’s books and records, directors may be required to bear the other party’s legal fees and other related costs.
How can I learn more?
Clare Chung.
Associate.
- Commercial & Litigation
- 03 9890 3321
- Email Address: c.chung@robinsongill.com.au
Clare is a litigation lawyer in the disputes team at Robinson Gill. A commercially savvy advocate with a sharp eye for detail, she acts on behalf of local and international clients in a range of dispute resolution matters.
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