In this case, the plaintiff was a minority shareholder who held 0.00005% of the issued capital in Admiralty Resources NL (Admiralty). The plaintiff sought an order permitting him and his solicitor to inspect specified books of Admiralty under s 247A of the Corporations Act 2001 (Cth).
The plaintiff sought to use the books to determine whether to bring a derivative action alleging a breaches of directors' duties in relation to the recommendation by the directors of Admiralty to Admiralty shareholders to vote for the proposed sale of Admiralty's controlled entity to another company, Icarus Derivatives Ltd (Icarus) without entertaining or disclosing a competing offer from a third party.
The plaintiff was concerned about the sale to Icarus because, among other things:
- the Explanatory Memorandum for the Extraordinary General Meeting (EGM) contained limited disclosure as to the identity and substance of the purchaser, Icarus (and its guarantor) and did not reveal any independent consideration by Admiralty's directors in relation to the capacity of Icarus to maintain the business efficiently. The document also did not contain any rationale or explanation as to why the purchase price or any component of it was appropriate or fair value; and
- prior to the EGM, the third party made 2 offers to Admiralty to meet every term and condition of the sale agreement with Icarus and would exceed some of the critical financial terms of the agreement by 50%.
Even though the Court did not consider whether the Admiralty directors breached their duties, the Court concluded that there was "a clear basis for investigation" into whether the directors acted with the requisite degree of care and diligence.
Based on the evidence given, the Court held there was a rational and objective basis for the plaintiff to inspect specified books of Admiralty and made orders for inspection of most categories of books.
The Court also considered the following in making its orders for the inspection of books:
- the "no shop, no talk" clause in the sale agreement with Icarus: given the terms of the offer by the third party, it is at least arguable that detailed consideration of the offer by the third party was required to determine whether the offer was "more favourable" than the existing offer; and
- the non-binding nature of the third party's offers: on their face, the non-binding nature of the offers should not outweigh the superior financial terms of the offers.
The case shows that a shareholder with an insignificant holding may request an inspection of company books, provided it is sought in good faith. In this case, the Court concluded there was a clear basis for an investigation as to whether the directors acted with the requisite degree of care and diligence when they recommended the sale of a controlled entity to a company without considering or disclosing a competing offer from another company.