Right to information

In some instances minority shareholders consider that they are not sufficiently informed about the activities of the company in which they hold a portion of the capital, their role being limited to the approval of the annual accounts.

In practice, irremediable conflicts may arise between shareholders which may be detrimental for the interests of the company in which they are shareholders.

In order to prevent the (potential) lack of information of minority shareholders about the company’s operations, the law provides, among others, for the mechanism of management expertise.

New Article 1400-3 of the law of 10 August 1915 on commercial companies, as amended from time to time (the “Law“) has increased the information rights of minority shareholders.

The current framework results from the reform of the Law which took place during 2016. However, when it came into force, legal doctrine was divided as to whether this procedure only concerned joint stock companies¹, such as public limited companies (sociétés anonymes), or whether the holders of participation in limited liability companies (sociétés à responsabilité limitée) could also benefit from this regime.

According to case law the answer seems to be affirmative.

During a dispute between shareholders, the District Court of Luxembourg examined a request from the shareholder of a limited liability company. In this case, the corporate form of the company was not considered as an obstacle to the legal proceedings and the application of Article 1400-3 of the Law².

The same case also specified the geographical scope of the management expertise.

In this respect, the court admitted the possibility of a management expertise when foreign subsidiaries of a Luxembourg parent company are involved, but in such a case, the expert cannot be entrusted with a mission to carry out investigations directly at the level of the foreign subsidiaries, but the mission should be limited to the possible information available at the level of the parent company (i.e. limited to Luxembourg territory).

This decision appears accurate insofar as a foreign company whose management acts do not fall within the scope of Luxembourg companies law, cannot be the subject of such a request for expertise in front of Luxembourg courts.

Scope of application of the management expertise contemplated by the law

As a reminder, the management expertise provided for by Article 1400-3 of the Law provides in substance for the possibility for one or more shareholders representing at least 10% of the share capital to ask the management body in writing questions on one or more management operations of the company.

This possibility extends to controlled companies (being understood as companies subject to the obligation to draw up consolidated accounts) and, as mentioned above, to a certain extent to foreign subsidiaries.

If no reply is received within one month, a judicial request may be lodge for the appointment of one or more experts to draft a report on the management operation(s) referred to in the written request³.

The management expertise is carried out in two phases, the first phase consists of a request for information made by a shareholder to the management body and if this fails, the second phase is carried out through a judicial procedure.

Parliamentary works and legal doctrine provide for some additional clarifications that allow the following comments.

The request for information shall relate to a specific transaction and cannot concern the company’s overall policy or strategy.

The request for information shall be useful to the shareholder making the request and not prejudice the company’s interests.

Even if the precision appears superfluous, it should be emphasised that the request may not concern information that has already been communicated or that is publicly available (company’s website, business register, etc.).

Lastly, a summary response is equivalent to no response.

Case law clarifications 

In addition to the above mentioned, case law has provided additional information⁴.

Answers given even late do not give rise to an expert report, as long as they provide all the information that can be expected.

Only questions which fall within the competence of the management bodies are admitted. Therefore, questions which fall within the competence of the shareholders’ meetings are out of the scope of the Law⁵.

The questions shall relate to management actions, which by definition concern facts that have already occurred. It is therefore not possible to ask questions about future projections.

The case law also seems to require the applicant to prove the abnormal nature of the transaction criticised. This point seems to be debatable or at least would need some clarification. Indeed, the request originates from a lack of information, therefore how the uninformed shareholder could provide this evidence when he is kept out of the decision-making process. Specific evidence of suspected irregularity should (in our opinion) be enough.

In most of the cases, the scope of the challenged act is examined in relation to the company’s interest, but it can also be analysed in relation to the personal interest of a minority shareholder (fulfilling the 10% shareholding requirement).

The appointment of an expert to draw up a report on management operations shall therefore meet certain conditions.

This seems entirely appropriate insofar as it should be reminded that the intervention of the courts in the life of a company should remain exceptional and only occur subject to serious cases.

Moreover, there are cases in which business secrecy imposes a certain confidentiality and the communication of information could harm the company’s interests.

It should also be noted that these requirements for the introduction of a management report represent effective filters to limit the triggering of legal proceedings whose sole purpose would be to maintain dissensions between parties.

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