Shareholders in Guernsey companies are often surprised to learn that they have far fewer rights to information about the company in which they hold shares than they had expected. This may not be problematic where there is a good dialogue between the company and the shareholder but can become a significant issue when a shareholder believes they are or may be suffering some kind of loss related to the company. If the company refuses to provide more than the information required by law it can be difficult to accumulate evidence which the shareholder needs in order to take action to protect their position. Indeed, this is one of the most common problems for a shareholder when attempting to resolve such concerns in Guernsey. This article discusses the available options for shareholders in Guernsey. Please be aware that this paper does not deal with rights to obtain information on companies listed on a stock exchange, which are beyond its scope.
The only information a company is obliged to provide to a shareholder under Guernsey statutory law, on request, are copies of the register and index of shareholders, the minutes of all Annual General Meetings and Extraordinary General Meetings and copies of all other shareholder resolutions. A shareholder is not statutorily entitled to other information, such as board resolutions, and this may prove problematic in the event that a shareholder starts to become concerned that their interests or those of the company are being adversely affected. One particular area of concern for shareholders in such situations is the absence of any statutory rights of access to information relating to the day to day financial affairs of the company, albeit there are requirements under the Companies Law to deliver accounts and directors reports to shareholders within 12 months after the end of the financial year to which they relate.
ARTICLES OF INCORPORATION
In addition to the statutory rights available to shareholders, the company‟s articles of incorporation may contain rights to information. A company‟s articles of incorporation constitute a contract between shareholders and the company and between the shareholders inter se, therefore if the articles do contain provisions relating to the provision of information these ought to be able to be relied upon by the shareholder. The first, and most likely, time when such rights may have been included would have been when the company was incorporated. Rights to information can be added to the articles of incorporation subsequent to the incorporation of the company, but this would require a special resolution of the shareholders which may not be possible to achieve if some shareholders are opposed to the proposed changes.
It is also possible to enter into a written agreement with one‟s fellow shareholders and the company in the form of a shareholders‟ agreement. Such a document can impose conditions on the company in addition to those found in the articles of incorporation, for example that certain information be provided to the shareholders beyond that required by statute. However, a shareholder‟s agreement is a contractual arrangement and therefore in order to bind all shareholders and the company, all must consent and enter into the agreement. It may be prudent to negotiate any desired measures when the company is being formed as after this point there may be difficulty in getting the other shareholders of the company to enter into such an agreement consensually where there is no obligation to do so. Once a shareholders agreement is in place it will usually contain provisions requiring all subsequent shareholders to become a party to the agreement.
DATA PROTECTION REQUESTS
It is always open to a shareholder to make a Data Protection request to the company for all the personal data about them that the company holds. There is a possibility this will assist the shareholder, depending on the information desired and actually held by the company. However, as the information will relate to the person making the data request rather than the company itself it is likely that this will not be of great assistance when trying to obtain information about the affairs of the company. For this reason such a request may not provide a great deal of assistance to a shareholder seeking company information.
GUERNSEY FINANCIAL SERVICES COMMISSION (GFSC) INVOLVEMENT FOR REGULATED COMPANIES
A company in which a shareholder holds shares may be regulated by the GFSC, depending on the company‟s activities. In the case of such a regulated company, shareholders may often assume that the GFSC will be willing to assist them in a dispute with the company. They may consider this to be the case particularly if it appears to them that the company has been acting unfavourably towards them. Whilst the GFSC has defined powers to investigate and intervene in the running of such companies, the purposes of such action must be in accordance with the purposes set out within the relevant regulatory laws. As such, it will not usually be likely that the GFSC will get involved with cases of concerned or disgruntled shareholders save where prejudice has been caused by regulatory breaches – in which case any investigation by the GFSC will almost certainly relate to the regulatory breaches rather than the shareholder‟s predicament.
CODE OF CORPORATE GOVERNANCE
Shareholders of regulated companies may wish to review the Code of Corporate Governance (the Code) which came into effect on 1 January 2012 and is described as "an expression of good corporate practice, against which shareholders and Boards, as well as the Commission, can better assess the degree of governance exercised over companies in Guernsey‟s finance sector."
Principle 8 of the Code states "The Board should ensure that satisfactory communication takes place with shareholders and is based on a mutual understanding of needs, objectives and concerns." The Guidance to Principle 8 provides that a company should have an appropriate communications strategy with shareholders and that the Board should ensure the provision to shareholders of adequate information on which they may base informed decisions.
However, from the perspective of the shareholder there is no mechanism to enforce the Code‟s application outside of raising this with the GSFC. As stated in the Code: "Non-compliance with the Principles does not automatically make a company subject to the Code liable to any sanction or proceedings." This makes it unlikely that the Code can be utilised to any significant effect in the event the company is proving reluctant to provide information, albeit that this is an issue which has yet to be adjudicated upon by the Royal Court of Guernsey.
It may be possible for a minority shareholder to gain the assistance of the Royal Court in the form of an order that the company provides the shareholder with certain information.
This remedy is potentially available due to the existence of statutory provisions in Guernsey which give a shareholder the ability to apply to the Royal Court for a wide range of orders in the event that the affairs of the company are being or have been conducted in a manner that is unfairly prejudicial to their interests.
However, before such an order would be granted by the Royal Court there would be a number of hurdles for the shareholder to clear.
Firstly, there must be conduct which the Court is satisfied represents conduct which is unfairly prejudicial to the rights of the shareholder.
Secondly, if the Royal Court does find that there has been unfairly prejudicial conduct, before it would make such an order requiring the provision of information, it will need to be satisfied that this is the appropriate manner of dealing with the unfairly prejudicial conduct.
Thus, it will be important to ensure that the entire background to any concerns are explored fully in advance of deciding whether to approach the Royal Court. In addition, there must be consideration of whether the relief being sought is of a nature which the Court is likely to grant in those specific circumstances, rather than simply what the petitioner wants. The Court is unlikely to order the provision of information if it considers that to do so would effectively be to embark upon a fishing expedition‟.
It should be appreciated from this brief discussion of shareholders‟ rights of access to company information that, absent provisions in the company‟s articles of incorporation or a shareholder agreement, it will often be difficult or even impossible for a shareholder to compel the provision of company information (outside of that to which the shareholder is entitled under the Companies (Guernsey) Law, 2008) if the company does not wish to provide the information. For this reason it is prudent that such a shareholder confirms the company‟s articles of incorporation or shareholder agreement contain suitable provisions before any issues arise. If these rights are not present, the shareholder may wish to try to persuade the company and their fellow shareholders of their necessity in the interests of good governance. Once parties are in dispute it will become increasingly less likely that the task of obtaining such information from the company will be fruitful, particularly if such information is likely to disclose wrongdoing.