Shareholders are owners of a company and provide capital in exchange for shares; receiving financial returns through dividends. They also influence the decisions made by a company through passing resolutions and deal with other internal affairs such as the appointment and removal of directors.
Shareholders have standard rights to access company information, such as financial statements, the minutes of general meetings, director details, and other shareholder information. It is quite possible for companies and shareholders to have disputes that end up in court; for example, alleging unfair prejudice as contained in s.994 of the Companies Act 2006.
To get ready for litigation, shareholders may seek to acquire information and documents from the company, although this raises the question about the company being placed at a disadvantage because of the duty of disclosure. This principles of legal privilege and common law offer a solution, allowing companies to maintain the confidentiality of specific legal advice and to keep it from shareholders pursuing hostile litigation.
Developments in Common Law: Legal Privilege of Company
Until recently, the common law for legal privilege against shareholders has always been governed by the Woodhouse rule (also called the Shareholder rule). This means that a company cannot claim legal privilege over any information against its own shareholders unless it concerned hostile litigation with the shareholder. This was on the basis that shareholders had a proprietary interest in the company’s assets, which means that shareholders could effectively access not only company records but also legal advice for the company itself. This could damage the course of corporate governance and deter companies from seeking honest and confidential legal advice – since it would not be confidential to authorised persons of the company. The rule also erodes the doctrine of separate corporate legal personality (as provided in Salomon v Salomon), where companies have legal personalities distinct from their owners. The rule, though requiring a legitimate reason for data access, remains fundamentally contentious.
Recently it was overturned by Aabar Holdings SARL v Glencore PLC & Ors [2024] – the Shareholder rule was abolished and ruled to be incompatible with the nature of companies’ separate legal personality. It was also stated that there were no other grounds that could legally support the principle. Shareholders generally have access only to specific documents that allow them to oversee overall performance and ensure accountability, but such rights do not extend to most internal or operational documentation.
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