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Knowledge is Power

Sunday 15 March 2020

A common theme in shareholder disputes concerns the ability to access relevant company records such as bank statements or documents setting out dealings with key suppliers/ customers.

It is often the case that, for example, without access to these documents, a shareholder cannot prove allegations of wrongdoing by the controlling shareholders. In many cases, an inability to access records or documents risks leaving a shareholder uncertain as to whether he/she has an actionable legal case.

Where shareholders are also directors of the company, generally they are likely to have much greater rights of access by reason of their directorship.  A director has a duty to acquire and maintain a sufficient knowledge and understanding of the company's business. To enable him/ her to satisfy that duty, the law grants a right to inspect the books of accounts of the company. Often this can be done accompanied by a professional adviser.

In addition there are also certain statutory rights of access to accounting records (e.g. Companies Act 2006, section 388).

It is also possible that other rights of access exist within a shareholders agreement or in the company’s constitution. For example, certain versions of Table A provide that shareholders (who need not also be directors) may, by ordinary resolution, grant themselves the right to view "any accounting records or other book or document of the company" (regulation 109).

For shareholders who are not also directors, the position can be more challenging. During court proceedings, a court will require core documentation to be made available to a shareholder. But even outside the context of court proceedings, there are certain rights to information for shareholders including, for example, the right to require a full audit of annual accounts and the right to see copies of directors’ contracts of employment.

For more information on the topic please contact Paul Lunt directly.