Over 6.5 million Australians own shares but many are unaware of their rights that are attached to being a shareholder. Most people assume that they hold a percentage of the company ownership, and that it is their right to be paid a dividend for their portion of ownership if the company makes a profit.
But were you aware that you may be entitled to company books and records if you suspect that the company is not running in the best interest of the shareholders? A recent Federal Court case in Hanks v Admiralty Resources NL showed that a 0.00005% minority shareholder may be successful in requesting to inspect company books and records. The plaintiff sought to use the books to determine whether to bring a derivative action alleging breaches of directors’ duties in relation to the recommendation by the directors of the company in question to its shareholders to vote for the proposed sale of the company’s controlled entity to another company without disclosing a competing offer from a third party. In this case, the plaintiff was able to show the court that there was clear basis for investigation into whether the directors acted with the requisite degree of care and diligence.
Shareholders have a right to access information regarding management and the financial position of the company. This right comes from the fundamental principle that shareholders are the owners of the company and therefore entitled to examine company records and books.
Although this right is incidental to the status of shareholder it is not an absolute right. The right exists to protect shareholders from the company being run by directors in a way that adversely affects the shareholders’ interests. Generally, if there is a good reason to examine the books, and such inspection is sought in good faith, then the courts may allow a shareholder to exercise their right to examine company records.
Reason for Inspection
A shareholder must have a real “case of investigation” in order to obtain access under Section 247A of the Corporations Act. Curiosity to examine such records is not enough. If a shareholder can gain information to answer their concerns from public information then the courts will not allow the shareholder to access company records and books. A serious or well-founded concern will generally constitute ultimate access to company records.
Scope of Section 247A
The onus is on the shareholder to prove good cause, and the shareholder must provide reasonable grounds to believe that maladministration or misconduct has occurred.
If there is a clear basis for investigation into company records and books, the courts will make an order for inspection under Section 247A authorising the shareholder to inspect the books or records of the company.
Essentially, being a shareholder offers you valuable rights that allow you to protect your interest in the company. No matter how insignificant or minor your percentage ownership of the company’s shares might be, if there is good cause for concern about the company not being managed properly or in the best interest of its shareholders, then you have a right to exercise your rights to inspect the company books and records. Don’t let the big corporations scare you off.