How Shareholders Can Obtain Company Information

How Shareholders Can Obtain Company Information

There are various reasons why shareholders could require the company’s information. This could be for mere supervision of the management of the company, or as is common, where there is a shareholder dispute, and the oppressed shareholder wishes to investigate questionable behavior by the oppressing director/shareholder.

Where the relationship between the shareholders and directors is healthy, information is often voluntarily provided by the directors on an informal basis or during the meetings. However, where there is a shareholder’s dispute, and/or the directors are not being cooperative, there are various formal mechanisms under the Companies Act 1993 that are available to obtain information of the company.

The general right of access to information held by the company

Section 178 of the Companies Act 1993 provides a right to the shareholder to obtain information held by the company by making a written request specifying the information sought. The company can charge the shareholder for the provision of this information; however, any such charge has to be reasonable.

Once the written request is received, the company has 10 working days to either:

  • Provide the information;

  • Agree to provide the information within a specified period;

  • Agree to provide the information within a specified period if the shareholder pays a charge to meet the cost of providing; or

  • Refuse to provide the information and specifying the reasons for refusal.

Section 178 allows the company to refuse the disclosure of the information in limited circumstances, being:

  • The disclosure of the information would or would be likely to prejudice the commercial position of the company and/or any other person; or

  • The request for the information is frivolous or vexatious.

If the company fails to cooperate with the provision of information, by either seeking an unreasonable fee, unreasonably delaying the provision of information, or refusing to provide the information at all in circumstances where there is no legitimate ground for refusal, the shareholder can make an application to Court to enforce his/her rights. The Court can make orders requiring the company to provide the information within such period and for such fee as the Court thinks just.

Alternatively, s 179 of the Companies Act 1993 allows a shareholder to make an application to Court seeking the appointment of a suitable person to inspect and copy the company’s documents. The appointed person can be the shareholder making the application, or a third party. The Court also has powers to make ancillary orders such as allowing the appointed person to conduct an audit or requiring the directors to assist with the inspection.

To be successful with the application, the shareholder needs to demonstrate that:

  • He and/or she acts in good faith, and the proposed inspection is for a proper purpose; and

  • The person to be appointed is a proper person for the task.

The costs of the inspection are generally met by the company unless the Court orders otherwise.

Section 179 would generally be used where the company refuses to provide information under s 178 of the Companies Act 1993, or there are other circumstances that would make an order under s 179 of the Companies Act 1993 more practical. However, proceeding under s 179 of the Companies Act 1993, without first attempting the process provided by s 178 of the Companies Act 1993, would generally require exceptional circumstances.

Right to receive specific information

Apart from the general rights to information, there are other provisions allowing receipt/inspection of specific documents.

Section 207F of the Companies Act 1993 entitles shareholders, in certain circumstances, to request copies of the financial statements prepared for tax purposes of the company. If circumstances are satisfied, the company must provide the documents within 10 working days of receiving the request, and free of charge.

S 216 of the Companies Act 1993 allows a shareholder, who issued a notice in writing, to inspect the following records:

  • Minutes of all meetings and resolutions of shareholders;

  • Copies of written communications to all shareholders or to all holders of a class of shares during the preceding 10 years, including annual reports, financial statements, and group financial statements;

  • Certificates are given by directors under the Companies Act 1993; and

  • The interests register of the company.

In the event of non-compliance with s 216 of the Companies Act 1993, the company and every director commit an offense and could be liable on conviction for a penalty of up to $10,000.

Lastly, the company’s constitution and/or shareholder agreement, if well prepared, may provide additional rights to shareholders to request and inspect the company’s records.

Conclusion

The shareholders own the company, and accordingly, the ultimate owners of all property owned by the company, including its information and records. Directors of the company are merely agents and fiduciaries and are under an obligation to make information available to the shareholders where reasonable requests are made.

If you are a shareholder who is being denied with information of the company or a director who is faced with unreasonable and/or prejudicial requests for information, our experts will be able to assist you with further steps to leverage your rights and entitlements to get information without necessarily going to Court.

For more information on the services we provide, see: https://norlinglaw.co.nz/shareholder-dispute/

The 10 Top Issues to Discuss and Document Before Entering into a Business Relationship

The 10 Top Issues to Discuss and Document Before Entering into a Business Relationship

66% of businesses fail. Because of our expertise, we see a lot of these businesses. There are many reasons why a business can fail, and a dispute between the shareholders is one of the reasons which is common.

As such, it is important to properly document arrangements between the shareholders before hands are shaken. Having a robust and a tailored to your personal needs shareholder agreement can help to avoid disputes. Also, if the shareholders do end up in dispute, the shareholder agreement can make the resolution of the dispute simpler and faster.

Based on our experience, a poorly drafted or a ‘templated’ shareholder agreement often causes more problems than not having one at all!

This guide is intended to give the top issues to be discussed, agreed and documented upfront between the prospective shareholders to reduce the chances of dispute. It is important that prospective shareholders turn their minds to these issues and document them properly.

Right to appoint and remove directors

Who has this right?

How is it triggered?

Minority Shareholders

How are they protected so that unanimous shareholder approval is required for some company decisions? Or do they not require this?

Exit strategies

If someone wants to leave, do shareholders have freedom to dispose of shares freely?

Are there pre-emption rights?

Can they sell to third parties?

What happens if a shareholder dies? Will the other shareholders be in business with their spouse or children or are there rights to purchase from existing shareholders?

What valuations apply to the transaction?

Are minority shares worth less (because they hold less control) or are all shares equal in value?

Nature of business

Are there any restrictions over the nature of the business and any change of this business?

Raising Capital

How will this occur?

What is the maximum commitment each shareholder is obliged to make? What happens if a shareholder does not make a contribution? Are they ‘kicked out’ or is their share simply diluted?

How will share dilution be avoided? Will it be avoided?

Dividends and other monetary contribution

Is there a policy for dividends?

Will certain shareholders agree to waive dividends for an agreed period or permanently?

Are shareholder’s drawings to be allowed and if yes, in which circumstances?

Directors

Do the directors have freedom of action, for example to invest in a new capital project or charge the company’s assets?

How are day to day decisions made?

How are the directors to be remunerated?

Do major transactions require 75% shareholder agreement or will it require a unanimous decision?

Business plan

Is there a business plan?

Non-compete covenants

Can shareholders compete with the company while still being shareholders?

Can shareholders compete with the company for a period after they sell their shares (say for 12 months)?

Shareholder disputes

How are shareholder disputes to be resolved? Arbitration? Mediation? Court?

Can there be an automatic forfeit of shares in certain defined circumstances? If so, what?

 

#ShareholderDispute #DisputeResolution #Litigation