LESOTHO
IN THE COURT OF APPEAL OF LESOTHO
HELD AT MASERU
C OF A (CIV) No.43/2023
CCC/0037/2022
In the matter between:
LCCI INVESTMENT HOLDINGS (PTY) LTD 1ST APPELLANT
CHAIRPERSON OF BOARD OF DIRECTORS
OF LCCI INVESTMENT HOLDINGS (PTY) LTD 2ND APPELLANT
And
THAMAE MOHAPI & 16 OTHERS RESPONDENTS
Coram: MOSITO P
SAKOANE CJ
CHINHENGO AJA
Heard: 15 October 2024
Delivered: 1 November 2024
SUMMARY
A majority of shareholders of a company asking for information pursuant to s 34 of the Companies Act 2011, specifically financial statements, minutes and resolutions of the company for a period of four years since incorporation of the company; Board of directors consisting of two directors, also shareholders, refusing to provide the information because, among other reasons, the initial request made by about four or five shareholders, the information requested was likely to prejudice the commercial position of the company and request did not meet the jurisdictional requirements of s 34;
High Court finding no merit in refusal and granting the application; On appeal respondent not appearing to oppose the appeal; Court nevertheless endorsing decision of High Court and dismissing appeal with no order of costs
JUDGMENT
CHINHENGO AJA:-
Introduction
[1] Shareholders are the owners of any limited liability company. Ordinarily they leave the management and day to day running of the company to executive directors and other employees of the company. The employees of the company are accountable to a board of directors, the members of which are normally appointed by the shareholders at annual general meetings. The board of directors is accountable to the shareholders and is required to furnish the shareholders with information as will enable them to know the company’s operations.
[2] There is information that a board of directors is by law required to give to shareholders from time to time or when specifically asked. For instance s 33 of the Companies Act 2011 (“the Act”) provides in subsection (1) and (2) that a shareholder or his authorised agent shall be entitled, upon written request to the board of directors, to be furnished with a copy of the company’s articles of incorporation and any amendments thereto and a statement setting out the structure of the shares issued by the company, and the rights, privileges, conditions and limitations on transfer, attaching to the shares. In terms of subsection (3) the board of directors may not be obliged to issue the statement if a similar statement has been provided within the previous 6 months, or the shareholder has not acquired or disposed of any shares since the previous statement was provided, or the rights attaching to shares have not been altered since the previous statement was provided.
[3] In terms of s 34 of the Act, a shareholder or his duly authorised agent may, at any time, request in writing for information held by the company clearly specifying the information sought. Within 10 working days of receipt of such request the company may provide the information, or agree to provide the information within a specified period, or agree to provide the information within a specified period if the shareholder pays a specified amount of money to enable the company to meet the cost of providing the information, or the company may refuse to provide the information, specifying the reasons for the refusal. Subsection (4) provides that the company may refuse to provide information under the section if the disclosure of that information would or would be likely to prejudice the commercial position of the company or the request is unreasonable.
[4] If a shareholder is aggrieved by a company’s refusal to provide information as requested, he shall, in order to enforce the request, apply to Court in terms of subsection (5) for an order that the company provide the information within such reasonable time or upon payment of a charge. The Court may make the order if it is satisfied that the period specified by the company for providing the information or the charge set by the company are unreasonable or the refusal to provide the information is itself unreasonable. When making an order pursuant to subsection (5) the Court is required by subsection (6) to specify the use that may be made of the information and the person to whom it may be disclosed.
Background
[5] The respondents are some of about thirty shareholders in the appellant company, which was incorporated in 2016. On 12 and 22 July 2021, four of them, through their legal representative, requested the appellant in writing, to give them information that would enable them “to know the position of their shares/dividends in the company.” The request was made in terms of s 34 of the Act. In the letter they stated that the information was “inclusive of the financial accounts of the company” for the financial years 2017/2018, 2018/2019, 2019/2020 and 2020/2021. The letter, in part, stated-
“We have noted that the company is still active as we haven’t heard anything to the contrary, and so is their shareholdership.
We must emphasize that the requested information will enable us to advise them accordingly in regard to their shares and dividends, especially seeing that [there] has never been any annual meeting being held which ought to have been, so the shareholders should have been given an opportunity to make some crucial decisions regarding their company.”
[6] The 2nd appellant, in his capacity as one of two directors and member of the board of appellant company, responded to the letter on 28 July 2021. He said that he “found the information required not only totally unreasonable but also surprising” for several reasons he detailed in the letter. Some of the reasons as advised to five of the respondents, among the 3rd and 5th respondents, in June 2021 and which I can decipher with some difficulty, are-
(a) that between 2019 and 2021 shareholders’ meetings could not be held due to the Covid-19 pandemic;
(b) the company’s audited accounts were always produced and were available to the shareholders to peruse only if they went to the 2nd appellant’s office where they were kept;
(c) the audited accounts could not be released to third parties “until all shareholders have had access to the information about the status of the company etc”, reason being that all shareholders must treated equally;
(d) the provisions of the law cited in the letter written by respondents’ legal representative did not give the shareholders concerned the right to demand company documents without clear reasons therefor;
(e) a generous dividend had been declared and paid to all shareholders even before most of them had been shareholders for more than one year;
(f) the request was vague in that it did not disclose the real concern of the shareholders in making the request;
(g) the board was apprehensive about releasing information that contains company secrets for unclear reasons apart from the fact that the process costs money for a company with meagre resources; and
(h) the directors were always open for discussion with any shareholder and ready to answer any questions about the company and its performance.
[7] The 2nd appellant’s letter was not an agreement or concession by the appellants to provide the information sought from the company by the concerned shareholders. In my view, it was a clear refusal to provide the requested information.
Application in High Court
[8] By notice of motion in April 2022, the respondents applied to the High Court for an order compelling the appellants to provide them or their authorised agent “with information regarding the financial statements” for the financial years from 2017 to 2020; “minutes of all meetings and resolutions of shareholders during the financial years 2017 to 2020” and “the minutes of the alleged meeting of the Board of June 2021, whereat the Board pronounced reasons for non-holding of meetings between 2019 and 2021 as stated in the letter of 28th July 2021 of the Chairperson of the Board.” They sought other reliefs against the Registrar of companies, cited as a party to the motion, but they abandoned those reliefs during the hearing in the High Court.
[9] The founding affidavit was deposed to by one of the shareholders, Thamae Mohapi, as the 1st applicant. He stated therein that he was “entitled to depose to this affidavit in terms of section 33 of the Company law.” He related how the company was incorporated in 2016 and how the respondents became shareholders of it. The company was formed in order to purchase shares in AVIS (Pty) Ltd which was a going concern and in the business of hiring out motor vehicles, mainly to the government. After the company was formed and purchased shares in AVIS (Pty) Ltd, the shareholders were advised that the company was “doing well and that there had been profits realised by the company during the course of the financial years ending 2016 and 2017.”
[10] In 2020 1st and 3rd respondents approached the 2nd appellant and inquired about the status of their shares. In response the 2nd respondent offered to pay to each shareholder M3 000.00 to “settle their returns on investments they made in AVIS (Pty) Ltd” through the 1st appellant. They were not satisfied with the response because they did not know the basis of the offer. They sought legal advice. They were told that if the payments were indeed dividends, the shareholders had to declare them as such at a shareholders meeting. It was then that they caused the letters of 12 and 22 July 2021 to be written to the appellants.
[11] In the founding affidavit the respondents stated that they were advised by their legal representative that the board of directors has the obligation to ensure that proper books of accounts are kept and audited annually and that they, as shareholders, have a right to receive and peruse information on the company’s operations and to inspect any records so given to them. They averred that they have a “right to raise any issues of maladministration or investigate suspected issues of maladministration of the company by the board of directors.” Thus, they sought the reliefs in the notice of motion.
[12] The appellants’ main averment was that the application was “unnecessary, premature and ill-advised.” They outlined the history of incorporation of the company and the taking up of shareholding by the respondents in about March 2016. The shareholders each holds 3000 shares. The directors, 1st appellant and one Ntaote Phillip Seboka, each holds 3001 shares. The 10th respondent held 1000 shares but no longer does. The total subscription was negligible, they said. That constrained the board to wait until 2018 to produce the audited accounts for the year ended 2017. The cost of the audit was M40 000.00 for each of the audit periods 2017 to 2019. At great cost to the company, they therefore produced the audited financial statements from 2017 to 2019, attached to the answering affidavit as annexure “D” to “F” and failed to produce subsequently. The audit for the year ended 2020 could not be done because the cost thereof had become unaffordable, and the Covid-19 pandemic had set in. The company however paid out to the shareholders M3 000.00 each in 2019. The explanation for this payment is given at paragraphs 5.5 and 5.6 of the answering affidavit:
“5.5 However and in 2019 and as a sign of good faith and a token or what could be considered as ex gratia, applicants were each paid M3,000.00 and the rest to pay for their 3 000 shareholding. This was after an unnecessary and unjustified insistence by 3rd and 5th applicants for the dividends on the belief that the AVIS deal was highly profitable then.
5.6 At some stage before the commencement of these proceedings, the 10th applicant borrowed M1000.00 then and thereby disinvesting and/or disposing of her shares.”
[13] The appellants stated that after their letter of 28 July 2021, the respondents had no cause to apply to court for any relief. In this regard appellants said:[1]
“… As shall be seen therefrom [from the letter] they were advised of the current situation of the company and the fact that they are free to request the information from the chairperson and how this should be done. Instead of heeding the contains of that letter, which in my respectful submission are consistent with the provisions of the Companies Act, decided to launch this application.”
[14] I have already stated that the appellants’ letter of 28 July amounted to a refusal of the request made. In the High Court the appellants however prayed for the dismissal of the application, first reason being that the request was made under s 33 of the Act, which relates to information that was given when the respondents when they became shareholders in 2016.
[15] I do not think that the above stated reason was a valid basis for seeking the dismissal of the application. It is clear from the papers that the respondents brought their application in terms of s 34 of the Act as they had stated in their letter of 12 July 2021. The reference to s 33 in the founding affidavit was indubitably an error, as even the appellants readily noticed, hence they addressed the requirements of s 34 of the Act. After referring to s 34 the appellants stated:[2]
“… Everything that applicants are claiming here is available at the offices of the company and there was no need to come to court as more fully appears in annexure “H” [letter of 28 July 2021] and if that response be deemed a refusal, it was justified under the circumstances as the letter indicates to the effect that disclosure of the information sought will or is likely to prejudice the commercial position of the company and that the request is unreasonable. I crave leave of this Honourable Court to incorporate the contains therein as if specifically pleaded herein. This is consistent with section 34(4) of the Companies Act.”
[16] The appellants contended that the respondents failed to meet the requirements of s 34. In particular they failed to show in what respects the alleged refusal to provide information was unreasonable. Appellants also found it ‘preposterous’ for the respondents to have requested the minutes of the meeting in June 2021 “when they even benefited’ from their investment following that meeting.”
[17] The replying affidavit reiterated the respondents’ position in the matter. It is significant that they adverted to s 94 of the Act which places an obligation on the board of directors to ensure that financial accounts of the company are prepared and made available to the shareholders. At paragraph 13 of the reply, the respondents disputed the alleged payment of M3000.00 to each shareholder and challenged the appellants to the proof thereof. They also made the point that the appellants stated in the answering affidavit that “the information requested is available and it is in their custody,”[3] so it was difficult to understand the opposition to the relief sought.
High Court decision
[18] The High Court (Kopo J) considered the evidence placed before him and ordered that the appellants should provide the respondents or their agent with “the financial statements of the company for the financial years 2017/2018, 2018/2019 and 2019/2020” and also release to the respondents or their agent “available minutes of all meetings and resolutions of shareholders during the financial years 2017 to 2020.” He also ordered the appellants to pay the costs of the application. It is against this decision that the appeal was noted.
Grounds of appeal
[19] The appellants listed five grounds of appeal. During argument and in response to questions from the Court to counsel, they did not pursue the first ground to the effect that the court granted the application based on s 34 of the Act when the respondents’ case was founded on s 33 of the Act. I have already observed that the argument was not well founded going by the evidence before the court a quo.
[20] Of the remaining grounds, the first, and perhaps the only one, with some prospect of success, is that the court erred if finding in favour of the respondents who did not meet or satisfy all the requirements of s 34 of the Act. The second is that the court misconstrued and misapplied the requirements of an interdict because it did not have regard to the fact that the respondents had an alternative remedy in law as provided by sections 49 – 50 and section 55 of the Act. The third is that the court erred in not finding that there were disputes of facts “as pertains to why meetings were not held and what information was already within the respondents’ purview.” The last ground of appeal is not clear to me. It is that “Once it [court] has concluded that there were mistakes in the respondents’ papers it should have dismissed the application.” The mistakes are not identified. The only one they may have had in mind is the reference to s 33 of the Act instead of s 34. This one was not fatal to the application.
[21] Although the appellants noted the grounds of appeal listed above, at the hearing of the appeal they submitted that their case was squarely on s 34 of the Act and they stood or fell on arguments based thereon. It is therefore unnecessary for me to consider the other grounds of appeal and submissions thereon as detailed in the heads of argument.
Discussion and disposition
[22] The respondents did not appear at the hearing of the appeal, neither did they file heads of argument. This means that this Court has to consider the appellants’ submissions only while at the same time bearing in mind that the appeal is no longer opposed.
[23] It is necessary to reproduce s 34 of the Act, now that it is the only basis for challenging the order of the High Court. Section 34 provides as follows-
“Right to receive information
(1) A shareholder or his or her duly authorised agent may, at any time, make a written request to a company for information held by the company.
(2) The request made pursuant to subsection (1) shall clearly specify the information sought.
(3) Within 10 working days of receiving a request under subsection (1), the company may-
(a) provide the information;
(b) agree to provide the information within a specified period;
(c) agree to provide the information within a specified period if the shareholder pays a specified amount of money to the company to enable it to meet the cost of providing the information; or
(d) refuse to provide the information specifying the reasons for the refusal.
(4) A company may refuse to provide information under this section if the disclosure of that information would or would be more likely to prejudice the commercial position of the company or if the request for information is unreasonable.
(5) A shareholder aggrieved by the decision of the company in relation to a request for information shall apply to Court for an order that the company provide the information within such reasonable time or upon the payment of a charge, if the court is satisfied that-
(a) the period specified for providing the information is unreasonable;
(b) the charge set by the company is unreasonable; or
(c) the refusal to provide the information is unreasonable.
(6) The Court shall, in making the order under subsection (5), specify the use that may be made of the information and the persons to whom it may be disclosed.”
[24] The appellants submitted that the respondents’ application did not meet the requirements of s 34(3)(d), (4), and (5). The submission is made in rather bald terms as follows:
“5.1 Whereas section 34 grants the respondents only the right to receive information, it also provides for the caveat under subsections (3)(d) and (4). It also provides under subsection (5), jurisdictional facts which must be present before litigation.
5.2 In casu, it is respectfully submitted that the appellants were justified in refusing the request and the reasons thereof are fully articulated in annexure “H” [their letter of 28 July 2021] regard being had to the fact that it was only four shareholders who had made the request, i.e. 1st , 3rd , 5th and 11th respondents. The argument herein is that appellants fulfilled the demands of those subsections.
5.3 It is respectfully submitted that the appeal herein should succeed as the relief sought herein should not have been granted as respondents never made a request in relation thereto. The request in terms of annexure ‘G’ is for ‘final accounts’ for the years 2012 – 2021 and nothing more. However, in their application they now sought what is different from their request. On a careful reading they now sought ‘financial statements’ for the years 2017 – 2020; minutes and resolutions. They now raised fresh issues of maladministration which were never part of the request in terms of the Act.
5.4 The argument herein is that the respondents did not fulfil the jurisdictional facts to justify this litigation in terms of the Act and this warranted the dismissal of the application. ”
[25] Notably whilst the appellants attempted to show that the respondents asked for information of one kind in their letter to the company and of another kind in the founding affidavit, they do not directly challenge the findings of the judge in that regard, nor does their contention carry weight in so far as the substance of the request is concerned.
[26] The judge came to the conclusion that financial statements can indeed be requested under s 34. The question before him, as he said, was whether the respondents had complied with the requirement of the section and whether the refusal or response by appellants was correct. In answering this question, he said that the respondents letters (annexures G1 and G2 attached to the answering affidavit) provided the reasons for the request – the need to know the position with respect to shares and dividends. He considered the reasons put forward by the appellants for refusing to provide the information – that meetings were not held due to Covid-19 restrictions; that they could not give the information to the four or so shareholders who had request for it to the exclusion of other shareholders and could only allow them to inspect the documents at the 2nd appellant’s offices, and that appellants were fearful that the information would prejudice the commercial position of the company, but without specifying the nature of the prejudice. The learned judge pointed out that the provision of information is intended to address the issue of good corporate governance, and he could not “fathom why it would be unfair if shareholders who have requested the information get it at different times to those who have not requested it or to their exclusion.” He rejected the appellants’ argument and concluded that there was no reason to justify the refusal. He went on –
“[30] Furthermore, the financial statements and their provision are part of corporate governance. Conglomerates have fallen due to bad or non-reporting. I cannot accept that any fear that may be there that information provided may adversely affect the business of the company can outweigh the need to govern the company well and provide shareholders with their right to know how the business is run. In any even the respondents are not refusing that the applicants can inspect the information. There should therefore be no reason [not] to provide information to the applicants for their perusal at their own leisure the information that is in the records.”
[27] The reasoning of the judge a quo and his conclusion are impeccable. The reasons for the refusal envisaged under s 34 (3)(d) were not given by the appellants in their letter of 28 July 2021 with any specificity or clarity. That explains why they are content to refer to annexure ‘H’ as containing their reasons when a reading of that long annexure shows that it is a rumbling piece which even the author cannot summarise in a way that conduces to an understanding of exactly why the appellants refused to provide the information. Reasons such as the non-preferential treatment of shareholders and the impact of Covid-19 are not convincing, regard being had to the fact that, at the very least, the request should have alerted the appellants to the need to provide the information to all shareholders, as it should be, and regard being had to the fact that the request also covered the period from 2017 to 2020 before the Covid-19 epidemic broke out.
[28] Section 34(4) entitles the company to refuse to provide information if the information requested would or would be likely to jeopardize the commercial position of the company. It cannot be enough for the company to make a bare assertion that the information would harm the commercial position of the company without, as was the case here, setting out the respects in which the company’s commercial position would be adversely affected. It must be properly explained why the information may not be provided.
[29] Section 34(5) is, in my view, inapplicable to the facts of the case. Two of the jurisdictional facts therein stated, the period for providing information and that the charge set by the company are unreasonable, were not raised as issues by the parties. The third fact, that the request was unreasonable is one on which the High Court made a definitive finding. It determined that the request was reasonable and the refusal unreasonable. I find no substance in the appellants’ arguments on these provisions of the Act.
[30] Two more arguments by the appellants, which are based on s 34 of the Act, are that the information requested in respondents’ letter to the company related only to ‘financial statements’ for the period 2017- 2020, yet in the application they requested, in addition, for ‘minutes and resolutions’, and, secondly, that the order of the court does not comply with s 34 in that it does not state the use to which the information would be put.
[31] I do not find merit in these last two arguments. In the respondents’ letter of 12 July 2021, it is specified that the information was required to enable the applicants therefor to understand the position of their shareholding and dividends. That information was “inclusive of the financial accounts of the company.” In my view the request was quite wide, encompassing information that would enable the shareholders concerned to understand the accounts. Minutes and resolutions relevant to such understanding were, logically, part of the request.
[32] The judge a quo considered that the request was clear. He rejected the appellants’ contention and directed them to avail to the respondents’ financial statements or audited accounts for 2017/2018, 2018/2019 and 2019/2020. Annexures “D”, “E” and “F” to the answering affidavit are the financial statements of the company for the years ended 31 March 2017, 31 March 2018 and 31 March 2019. These could easily have been given to the respondents.
[33] Appellants gave an explanation as to why the financial statements for year ended 31 March 2020 were not prepared. It is up to the shareholders to proceed in terms of s 94 of the Act and compel the board to prepared them, including those for subsequent years. As for the minutes and resolutions, it is clear from the appellants’ affidavits that they did not come out clean and say that no meetings were held, and no resolution were adopted. They could not say so because that simply cannot be. Decisions must have been taken to approve the annual financial statements and the alleged ‘ex gratia’ payment of M3 000.00 to each shareholder. The order of the court was quite specific that only those minutes and resolutions that are available should be given to the respondents. Although the order did not specify the use to which the information was to be put and the persons to whom it was to be disclosed, the application covered those issues: the purpose of the request was known, and the recipients clearly identified. The respondents, who are a majority of shareholders were to the persons to whom the information was to be given.
[34] The position adopted by the appellants in these proceedings speaks loudly to the fact the company has not been run with any shred of transparency and that the board has not performed its tasks in the best possible manner. The respondents were entitled to seek to understand the affairs of the company. The board is obliged to meet the shareholders’ request for information. In these circumstances, the shareholders may, with perfect entitlement, now act in terms of s 94 of the Act and require the board to carry out its obligation of preparing the accounts of the company. There is no basis for impugning the decision of the High Court and no basis at all for the argument that the requirements of s 34 of the Act were not met.
[35] The respondents did not appear at the hearing of the appeal, nor did they file heads of argument. In my view they are not entitled to any costs of the appeal even though the appeal has failed.
[36] In the result the appeal is dismissed with no order of costs.
_________________________
MH CHINHENGO
Acting Justice of Appeal
I agree:
________________________
KE MOSITO
President of the court of appeal
I agree:
________________________
SP SAKOANE
Chief Justice
FOR THE APPELLANTS: ADV T M MPAKA
RESPONDENTS: NO APPEARANCE