Where Board directors do not see eye-to-eye, there is sometimes a complaint by one or more directors that they are being denied access to key financial information, and are being squeezed out of the decision-making process. So what rights do directors have to access company information?
The law on this issue is a mixture of statute (laws laid down by parliament such as the Companies Act 2006) and common law (laws made by decisions of the Courts). Since the law imposes duties on directors to manage a company in the best interests of the company, its shareholders, creditors and other stakeholders (e.g. employees), and in certain circumstances imposes criminal penalties for failure to discharge those duties, it is not surprising that the law seeks to give directors access to the information that will enable them to carry out their duties. What is surprising is how few company directors know what those rights are, or, in many cases, what their duties are.
Statutory Right to Information
In terms of statutory rights, statute law since the beginning of the twentieth century has provided for the maintenance of company accounts, and the rights of the directors to inspect those accounts. Over one hundred years later, those rights are contained in section 388 of the Companies Act 2006, which provides, at section 388(1) that:
“ A company’s accounting records-
a. Must be kept at its registered office or such other place as the directors think fit, and
b. Must at all times be open for inspection by the company’s officers”
A company’s “officers” are its directors and the company secretary.
Common Law Right to Information
However, even before the twentieth century, the Courts had ruled that directors had a right to see company information. In Burn v London and South Wales Coal and Risca Investment Co. (1890) it was held that “ a director has a right to see and take copies of [all] documents belonging to his company”.
As the common law developed, the principles around directors’ rights to access company information were laid out more clearly in Conway v Petronius Clothing (1978) as follows:
1. The right of a director to inspect the books and records of the company is a right conferred by the common law in order to enable the director to carry out his duties as a director;
2. The right ends when the director ceases to hold office;
3. In the case of obstruction by the company, the Court has a discretion whether or not to order inspection of the books and records; and
4. Special considerations may apply to the exercise of the Court’s discretion where the director seeking to assert his right is about to be removed from office.
However, it is clear from later case-law, that the right to inspect only applies in order to enable the director to carry out his duties.
In Oxford Legal Group Ltd v Sibbasbridge Services plc  it was held that a Court could not order access where the director was seeking the information for an “improper purpose”, which was defined as any purpose other than to carry out his duties as a director. Examples of an “improper purpose” would include a shareholder director seeking to access information to assist his own private claim against the company, or where a shareholder is seeking the information to pursue an “unfair prejudice” action (i.e. an action alleging that the company is being run in a way that is unfairly prejudicial to one or more of its shareholders) against his fellow shareholders. However, the judge in Sibbasbridge did make it clear that the burden of proof rested on the company to show that the director was seeking information for an “improper purpose”.
So, in summary, the law is clear that a director has the right to access accounting records, unless he is seeking to access them for an improper purpose, and the burden is on the company seeking to deny access to prove that the director’s motives are “improper”.
What about other Company information?
Statute and Common Law is pretty clear that directors have the right to access accounting information, but what about other company information? Here the law is less clear since much of the case law deals merely with access to accounting records, although some of the early cases such as Burn v London and South Wales Coal etc. did not make any distinction between accounting and other information when asserting the directors’ rights of access. However, in a recent case, Dilato Holdings Pty Ltd v Learning Possibilities and others , which dealt with director’s undertakings, the judge considered that the principles of Conway and Sibbasbridge applied generally to all documents of the company and not just accounting records, with the proviso that the director may only use those documents for the purpose of performing his duties as a director.
Although it is never possible to predict with 100% accuracy how case-law will develop in future, it seems to be at least arguable that a Court will rule in future that a director’s right to access company information applies to all information of the company, and not just accounting records.
The above being said, there may be some particular circumstances in which a company could rightfully deny a director's right to access accounting information. For more information about this, see our blog here.
If you do feel that you are being improperly excluded from access to company information, please do not hesitate to contact Iwan Emanuel on 01494 893 570.