Transparency under pressure: what if there is a lack of information within a company?

Transparency is the oxygen of any company. When a director or shareholder withholds essential information, collaboration comes under pressure. In this article, lawyer Marlies Janssens outlines the legal remedies available and how you, as a shareholder or director, can act thoughtfully within the framework of company law.

Lack of information in a company: a practical example

An information blockage does not only affect trust, but also the valid functioning of the board of directors. The example below illustrates how such friction can escalate into a legal stalemate.

Case outline | Suppose A and B establish a company together to engage in project development. A takes on the operational management of the project, while B handles the legal and financial aspects. In addition to both becoming shareholders, A and B agree that each may nominate a director and that the board will decide collegially. But what if the operational side starts to face delays and A, despite informal requests from B, refuses to provide sufficient clarification?

Enforcing transparency within the board of directors

Access to information is essential within a collegial board of directors. Members must be able to make joint decisions with full knowledge of the facts. The following principles, among others, require a director to share information within the board:

• Duty of loyalty
• Duty to inform
• Duty to act in the company’s best interest
• Compliance with the Code of Companies and Associations (CCA) and the articles of association
• Directors’ right of supervision and control

In theory, this sounds straightforward, but how can you effectively compel a fellow director to share information in practice?

#1. Send a formal notice convening a board meeting, providing an overview of the missing information and requesting that the director concerned bring and explain this information in detail.

#2. Hold a board meeting at which you request clarification on the information asked for. Tip: it is crucial to have the meeting properly minuted. This ensures that each party’s position is clearly recorded and that the minutes can later be used as evidence.

If B’s director does not attend the board meeting or refuses to provide the requested documents, A may subsequently or simultaneously also rely on his rights as a shareholder.

Shareholders’ rights in case of lack of information

As a shareholder, A also has several rights. In the scenario of A and B, the following rights are particularly relevant:

• The right to convene a general meeting
• The right to ask questions during the general meeting
• Individual right of inspection and control

If B continues to refuse to fulfil his responsibilities as a director, A may — provided he holds a sufficient majority — also threaten to initiate director liability proceedings against B. This, however, requires a very cautious approach, since directors in a collegial body are, in principle, jointly and severally liable. This means that A also risks being held partly responsible for any faults committed by B.

If A is the majority shareholder, the dismissal of director B is, in theory, also possible. This option likewise requires careful strategic consideration, as the legal obligations of directors are far more extensive than those of shareholders. By pushing for dismissal, A may therefore risk releasing B from his most important obligations as a director.

Formal notice of default and exit options in case of a shareholder conflict

If no progress is made at the level of the board of directors nor at the level of the general meeting, A may formally put B on notice to share the information based on the above-mentioned principles. In doing so, A creates a “paper trail” that may prove essential in any future legal proceedings. If the collaboration deteriorates to such an extent that the shareholders no longer wish to continue together, several exit options remain available, though they require adequate supporting evidence.

Prevention is better than litigation

The appropriate approach inevitably depends on A’s exact position within the company: whether or not he is a director, the extent of his voting rights, and his impact on decision-making. In any case, the following points are always important:

#1. At the start of the collaboration, make clear agreements on how information will be shared between partners, for example regarding frequency, format, and feedback mechanisms.

Specifically in project development, it may be advisable to work with a shared data room so that everyone has access to the same information at the same time via the same platform.

#2. If the collaboration nevertheless stalls, ensure careful file building and documentation.

In the event of escalation to court, you can then rely on a solid paper trail demonstrating which steps were taken — or omitted — by each party.

NOMA, legal support in shareholder disputes

Are you facing a (potential) shareholder dispute? Our corporate law attorneys listen to your story, analyse your unique situation, and advise you on a legally sound and strategically considered approach. Feel free to get in touch.