A director is, by default, entitled to inspect company documents under section 245 of the Companies Act 2016. Can the court refuse the request of a director of a company to inspect company documents, and if the answer is yes, on what grounds?
In the recent case of Low Ean Nee v SNE Marketing Sdn Bhd, the High Court addressed the question above and determine whether a director is entitled to inspect the documents of a company.
Brief facts
- The Plaintiff is a shareholder of the Defendant, being the company, and holds 50% of the shares in it.
- The Plaintiff conducted a search, made copies of the Defendant’s documents, and lodged a police report alleging forgery of her signature. As a result, the Defendant’s premises was raided by the police in April 2019.
- She further filed an oppression action against the Defendant alleging oppressive conduct, but the action was dismissed.
- In October 2020, the Plaintiff again requested for the Defendant’s documents, but the request was refused by the Defendant on the ground that she would have been provided with the documents in the oppression action already.
The Law
- A director is entitled to inspect documents under section 245 of the Companies Act 2016. The court must allow the right to inspect if the directors are properly discharging their duties for the benefit of the company.
- However, this case demonstrates that they are exceptions to this rule. In particular, the court can refuse if the director’s reason for inspection is actuated by improper or ulterior purposes.
- In cases of refusal, directors may rely on the presumption that the request for inspection is made in the discharge of the director’s duties. To invoke this presumption, the director only needs to demonstrate that he is a director of the company, that he had demanded inspection as a director, and such right has been refused.
- The burden then shifts to the company to rebut the presumption.
Court’s findings
The High Court dismissed the Plaintiff’s claim and held the following:
- The Defendant had successfully shown that the Plaintiff’s request for inspection was unrelated to the discharge of her director duties.
- The Plaintiff was therefore not allowed to inspect the documents because her actions raised serious questions on whether the request for access was made in good faith. In arriving at the judgment, the court found that:
- She exposed the Defendant to unnecessary litigation;
- The documents were available to the plaintiff at all times but she never showed any interest in the documents or the business of the Defendant;
- She refused to give an undertaking that she will not use the documents for any ulterior or improper purpose;
- She was hardly active in the business and was a non-participating director of the Defendant and the inspection of the documents does not assist her in her director duties in any way.
Key Takeaways
The High Court in this case did not hesitate to draw an inference of bad faith when it took into consideration of the past actions of the Plaintiff in initiating frivolous actions against the Defendant and when she refused to give an undertaking. This also shows that the past conduct of a director in a company is a relevant factor to whether the right of inspection will be granted.
The statutory right of inspection applies only to directors but does not extend equally shareholders (which is often confused point), as the reason for the inspection of documents must relate to the discharge of the duties of a director.
Such right of inspection is absolute, but the court can refuse to grant the right of inspection where the reason for inspection is for an ulterior motive.
It is nonetheless still important for director to act in good faith when requesting documents, to the extent that such requests will assist them in performing their duties in the interest of the company.
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This article was written by Tiffany Chin (Pupil in Chambers) and edited by Shawn Ho (Partner). Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020 and 2021. We are also ranked as a Recommended Firm by IFLR1000 2020 and 2021.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.
