The right to information of the shareholders or members of a company is established as an autonomous right, even though it could serve an instrumental purpose for the right to vote. This has been the position of the Supreme Court since before the reform of the Spanish Companies’ Act of 2014 (La Ley de Sociedades de Capital – LSC), until a recent ruling of 29 May 2024.
Articles 196 and 197 of the LSC regulate, in general terms, the right to information for both limited liability and public limited companies, albeit within the context of a forthcoming general meeting of members or shareholders, since these articles are embedded in Section Two of Chapter VII, titled “Calling of the General Meeting and the Adoption of Resolutions.” Under a systematic interpretation, the provisions of said articles regulate the right within the context of the General Meeting of Shareholders or Members, and not without.
Article 204.3.b) of the LSC establishes that shareholder or member resolutions may not be challenged on the grounds of an infringement of the right to information, when the information is not essential for the reasonable exercise by the average shareholder or member of the right to vote, or any of the other participation rights. This refers to the lack of information in cases of decisions at the general meetings of shareholders or members.
For its part, the case law of the Supreme Court dealing with shareholders‘ right to information focuses on cases where the validity of a general meeting or certain decisions is challenged on the grounds that the shareholders’ or members’ right to information has been ignored or not respected, in relation to these points.
In the light of this, the question arises as to whether the shareholder’s right to information is applicable to other cases.
Let us recall what has been stated by the Supreme Court regarding the autonomous nature of the right to information, and in particular the statement that it is “…without prejudice to the fact that it could serve an instrumental purpose for the right to vote.” The combination of both statements allows us to reasonably conclude that the right can be exercised, not only within the context of the holding of a forthcoming general meeting of shareholders or members, in relation to the matters on the agenda to be debated and voted on at the meeting, but also without in other circumstances.
In reality, however, an absolute and unrestricted right to information inevitably clashes with two issues: 1) directors’ obligations with regard to the management of the company’s information; 2) the duty of the directors to protect the company’s interests.
Given the problem, the first step would be to determine whether shareholders can demand from directors, at any time, any information or data about the company. The second, if the answer is yes, would be to determine the scope of the right.
As regards the first question, it seems that the right to information cannot be used “rough-handedly” but must be sifted and its exercise assessed according to the case in question, although it can be generalised by saying that its exercise must be limited to cases where the request responds to a truly justified need. Without going to extremes, a shareholder or member who receives regular information on the company’s progress and takes part in the ordinary general meeting for the approval of the annual statements could only demand data or information in accordance with the provisions of articles 196 and 197 of the LSC. On the other hand, when the shareholder does not receive information on the company’s progress and the directors do not call general meetings, such an exercise seems legitimate. In less defined circumstances than the above, various factors and circumstances both prior and contemporaneous to the exercise of the right will have to be weighed, such as the degree of access to information enjoyed, precedents, the relevance of the information, and its volume.
And, as regards the scope of the right to information, the Supreme Court’s interpretation of the right to information in relation to the items on the agenda of a shareholders’ meeting is clear, establishing that the right to information is not absolute, in the sense that, when the administrative body does not provide the information requested by the shareholder or member, but rather other equivalent information or information sufficient to be able to participate in the meeting and vote on the agenda, the right to information cannot be considered to have been violated. Nor will it be infringed when the information requested is innocuous or unnecessary for such purposes.
The right to information of the shareholder of an unlisted company cannot be dissociated from the duty of due diligence of the board of directors established in article 225 of the LSC. At its core, it is the duty of the directors to perform their duties and comply with the duties imposed on them by the articles of association of the company, as well as and the law, with the diligence of an orderly businessman (art. 225 of the LSC). Likewise, their management must be carried out with the loyalty of a faithful representative, acting in good faith, and in the best interests of the company (art. 227 of the LSC). The concept of the duty of loyalty is developed in article 228 of the LSC, and among the basic obligations that it imposes on the directors (it is not a closed list), the conservation of the information to which they have had access during the performance of their duties stands out. This includes confidential or secret information.
In view of the right to be informed and the duties of the director, the possibility of a conflict between the right of one and the obligation of the other seems obvious. Therefore, what is the extent of the director’s duty to inform the shareholder with data, information or documents relating to the company or its business, when this is not necessary in order to understand a resolution which will be put to a vote?
If we consider only the obligation of secrecy provided for in article 228 b) of the LSC, we would have to conclude that the disclosure of company information is prohibited, both for third parties and for shareholders. However, we know that this obligation is not absolute, insofar as article 197 of the LSC establishes the obligation to provide the information requested by shareholders, even in the event of information that could harm the company’s interests, when it is requested by shareholders holding at least 25% of the share capital. However, this obligation only applies in the particular context of the holding of a forthcoming general meeting of shareholders, and therefore we should not apply this rule to the right to information exercised outside this context.
In our opinion, the shareholder’s right to information cannot imply interference in the management of the company, nor can it generate a reasonable risk of disclosure of information that would harm the company’s interests. In these cases, the board of directors must decline (in whole or in part) the requests of shareholders for the information, if it concludes that acceding to the request would generate a tangible risk of damaging the company’s interests. In this regard, it is up to the management body to judge the circumstances in which the information is requested, who is requesting it, and the nature of the information requested, paying special attention to the effects on the company if the information provided were to enter the public domain or fall into the hands of competitors or third parties interested in harming the company.
By delegating the executive governance of the company to the board of directors, the shareholders’ meeting leaves the management powers and the handling of the information necessary for this purpose in its hands, and it is the latter’s duty to act while maintaining the confidentiality of this information (228 b) LSC). In accordance with this mandate, the shareholders cannot supplant the directors or become a shadow executive power by leveraging the excuse of the right to be informed, since it is one thing to know the state and progress of the company, and another to interfere in the executive tasks with untimely requests, whose attention consumes the company’s time and resources. The director’s duty of loyalty is not in relation to the shareholder but in relation to the company’s interests, and therefore, it must be concluded that, since there is an autonomous right of the shareholder that, in the abstract, entitles them to be informed outside the scope of the general meeting, it is up to the management body to judge whether it can or must provide the information requested, in the light of the circumstances of the case, always bearing in mind the duty of loyalty and in particular the obligation of confidentiality that comes with the performance of their duties. This judgement is necessary for reasons of logic, common sense and proportionality, but it is also protected by the right of discretion granted to directors by article 226 of the LSC, which not only applies externally to the company, but also internally. Above the right of the shareholder is corporate interest, i.e. the objective for which the company exists and for which its directors work, a principle to which the individual right must be subordinated, insofar as the satisfaction of the latter cannot result in the infringement of a higher interest (the corporate interest), since the raison d’être of the company hinges on the latter. Consequently, the denial of total or partial information to the shareholder should not in itself constitute either a lack of diligence on the part of the directors or an infringement of the right to information, but, in order to reach such a conclusion, the facts and circumstances of the case, as well as the reasons put forward to justify the decision must be taken into account and assessed.
And, finally, the refusal to provide the requested information does not exhaust the shareholder’s options, since they may still call an extraordinary general meeting, either alone or together with other shareholders, to present issues of interest and, if appropriate, submit them to a vote, requesting the necessary information, under articles 196 or 197 of the LSC. And, if the directors’ actions are deemed to have been obstructive or ill-intentioned, they could also be removed from office at the general meeting, or even bring corporate liability actions against them for breach of their statutory or legal obligations.
Eduardo Vilá
Vilá Abogados
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16th August 2024
