In this week’s update, we look at what to look out for when as a shareholder in a private company, you don’t feel in the loop and what might be the replacement for the ubiquitous CE mark in the post Brexit world…
Requesting information from a company as shareholder
Any starting point for either a shareholder wanting access to company information or alternatively, a director responding to a request for such access, is being aware of the dividing lines between the two roles.
The place to start from both perspectives, would and should be the Articles of Association plus any shareholders’ agreement.
Usually (but not always), these tend to provide that a shareholder only has the right to obtain very limited documents from the company. Examples of this would include items such as notices of meetings or accounts etc. However, there can be and are Articles of Association / shareholders’ agreements negotiated that do provide for a wider scope and for example, some include provisions for comprehensive business plans to be approved incorporating a much wider set of documents to be requested by shareholders.
This can change though if a shareholder is engaged in litigation with either the company or other shareholders. The shareholder would then be entitled to seek disclosure of relevant information from the company as provided by the Civil Procedure Rules in the same way as any litigant.
This could involve seeking access to legal advice given by solicitors to the company about its affairs and/or internal board discussions about such advice, the caveat here being if such access is relevant to the claim.
You may be aware of the concept of legal advice privilege which on the face of it should protect such advice from being disclosed. However, the interesting counter to that is that a company generally cannot assert legal advice privilege against a shareholder. The legal reasoning behind this seems to run along the lines that the company’s legal advice is indirectly paid for by the shareholders and it would be wrong for the company to be able to assert privilege over it.
There is however an exception to this in a situation where there are what are known as ‘hostile proceedings’ between the company and its shareholders. For the exception to apply there must be a genuine dispute between the company and a shareholder as matter of fact.
No CE mark, what next for Europe exports?
The current position, as businesses know, is that the EU’s New Approach Directive requires certain goods to bear a CE mark when they are put on the market in the EU as assurance that the product has undergone conformity assessment and meets various specific safety requirements.
However, once the Brexit transition period ends on 31 December 2020, products from the UK placed on the EU market will be considered imports into the EU and vice versa.
The key change, as set out in the Department for Business, Energy and Industrial Strategy published on 1 September 2020 (‘Guidance’), is that the UK Conformity Assessment (“UKCA”) mark, and not the CE mark, will be required for goods placed on the market in Great Britain from 1 January 2021.
The Guidance provides some reassurance to manufacturers by confirming that businesses will have until 31 December 2021 to adjust the conformity assessment markings on their products.
The new UKCA marking, however, will not currently be recognised on the EU market nor on the Northern Ireland market meaning that products currently required to have a CE mark for sale in the EU will continue to require a CE mark.
The news at present is that products for placement on the market in both Great Britain and the EU will therefore be required to have two conformity assessment marks by the end of 2021 although the silver lining is that at present, the UK legislation around conformity assessment is identical to the EU Directive and so the requirements for obtaining a UKCA mark is the same as for the current CE mark.
The biggest imminent change is that from 1 January 2021, manufacturers will have to be very careful to ensure their third-party assessor is EU-recognised. Any existing stock though does not have to be re-marked and can be placed on the Great Britain market after 1 January 2021 with existing markings and notified body numbers.
The Guidance does highlight an important change to the status of UK distributors, who as at 1 January 2021, will become exporters if placing their products on the EU market, or importers if bringing EU products to the UK.
This new importer/exporter status comes with enhanced responsibilities and potential new verification requirements.
There is little guidance in the Guidance though on products that are currently not subject to the CE mark conformity assessment (such as automotive, pharmaceutical and chemical products), meaning that many industries will have wait for further information.
Conclusion
COVID has brought out the stress in company management with the unfortunate side effect of an increase in both board fall outs and shareholder disputes. The rules around obtaining information and how privilege would apply are complicated and legal advice as early as possible is essential.
Although there would seem to be conformity between the CE mark and new kid on the block, being the UKCA mark, the new Guidance referred to above does go on to state that while there are no current plans for UK legislation to diverge from EU requirements after the end of the transition period, there is a possibility that UK and EU requirements could diverge before 1 January 2022 – watch this space….
Please drop us an e mail or call if you need any further details and stay safe and well.
Roger
