Management of companies is generally the responsibility of the directors. Shareholders have very limited options to intervene in the management decisions made by the directors.
What happens if a shareholder wants access to company documents which the company won’t provide? Section 247A of the Corporations Act provides an opportunity for a shareholder to ask the Court to require the company to provide the shareholder with access to the books and records of the company. To obtain a Court order, the shareholder must satisfy the Court that it seeks access to the records in good faith and that the inspection of those records is sought for a proper purpose.
Previous cases have found that a proper purpose can include trying to seek financial information from the company to assess the value of the shareholding or if the shareholder has reasonable grounds for believing that there has been misconduct or a breach of duty by the directors.
However, it is not enough that the shareholder is simply not happy with the management decisions. Mere curiosity or a general suspicion about the directors or the management of the company is also not enough to meet the criteria of a proper purpose.
On 17 December 2021, the Federal Court refused an application by a 15% shareholder of a company for access to various categories of books and records of the company in relation to a proposed debt re-finance arrangement.
The company had qualified independent directors, had released a term sheet for the debt re-finance to shareholders and had been making regular disclosures about its investigation and inquiry processes in respect of re-financing to its shareholders. However, the company had withheld the identity of the proposed new financier to protect the confidentiality of the deal before its finalisation.
The Court found that the company had released sufficient information and was entitled to withhold the identity of the financier.
The Court found that the shareholder’s real purpose for seeking access to the books and records was to obtain more information to allow it to pitch an alternative finance offer of its own and that the shareholder had no reasonable grounds to suspect misconduct or any breach by the directors. The Court considered that the shareholder’s purpose may have been to “prevent the debt refinance or to propose some unformulated alternative, within an unrealistic timeframe and in circumstances where such an action has the potential to trigger the collapse of Nimble.”
The application for access to the books and records was unsuccessful. The Court concluded that the shareholder had “done no more than demonstrate that it is dissatisfied with and disagrees with the decisions taken by Nimble’s management.” There was no evidence that the directors had not acted diligently or efficiently.
Enares Pty Limited v Nimble Money Limited, in the matter of Nimble Money Limited [2021] FCA 1596
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