Information and Disclosure Rights in Bulgarian Public (or Joint-Stock) Companies11 August 2013
Minority shareholders in all types of corporations often wish to exercise rights to obtain information, for instance:
- on the financial and non-financial performance of the company in which they hold an interest;
- on the remuneration of its management by means of salary, shares or other incentives; and
- on transactions the management or the company has undertaken with related parties.
In this respect, minority shareholders are not, without else in a good position, since they generally do not have the right to control management, appoint any directors or board members or use the General Meeting of the company to adopt resolutions which may allow them the type of access that they may need. They need additional legal rights to enable them to achieve such objectives.
Bulgarian law distinguishes quite clearly the rights to information which the shareholders in private, closely-held, companies have from those of the shareholders of public (joint-stock) companies. In this note, we deal with the rights incident to shareholding in a public (whether listed or unlisted) company. Private (or limited liability) company shareholders are in general in a more advantageous position, but it is also one which is differently structured and should therefore be properly the subject of special treatment elsewhere.
We look below at several contexts in which information or disclosure rights arise in favour of minority shareholders:
As participants in a company’s General Meeting (“GM”), minority shareholders have the right to receive information related to the agenda of each session of the GM, and more specifically, they can require copies of the written materials related to each session of a GM (whether extraordinary or regular annual). Such written materials should in principle be provided or made available to them (perhaps by posting on an accessible internet page) by the date of announcement of the invitation for the GM in the Company Registry. The agenda ought in principle to be prepared by the Board to a certain level of detail, and to be supported by documentation, including but not only where items on the agenda include proposed shareholder resolutions.
A second way in which shareholders may exercise rights to access information is In the context of corporate events (eg, information to be provided to shareholders – but not to others – at times of reorganisation, conversion to a private company, liquidation, or at the times of other key changes and the associated votes).
Thirdly, there may be in Bulgarian law a possible general right of shareholders to ask the Board questions connected with the management of the company and to receive answers to them (arguably this right is constrained within certain reasonable limits, and applies only where it is not against the interests of the company). Such a right exists for instance in German law in relation to Aktiengesellschaft companies (AkzG §131(1)) (only during GMs), and may be applicable in a nascent form in Bulgarian law which is otherwise very receptive in corporate matters to the influence of German private law.
Fourthly, any rights to information or disclosure that may realistically follow from a court order in the context of proceedings by a shareholder against the company, in which the shareholder claims for a protection of its interests may also assist the disclosure-seeking shareholder.
All of the above would be enforceable ultimately by court orders via Arts. 71 and 74 of the Commerce Act (shareholders’ rights to bring proceedings to defend their interests or have decisions cancelled – eg, a decision for which a shareholder claims that insufficient information was provided).
In addition to information/disclosure rights, shareholders have a general entitlement to acting to defend their interests, pursuant to the same statutory provisions.
Disclosure and information rights are a very important instrument in establishing corporate value and performance and may potentially serve in substantiating and supporting legal action by shareholders designed to police the interests of the company and the avoidance of dissipation of value. It should be noted that on its face, Bulgarian law requires a shareholding of 10% or for the initiation of legal proceedings by or on behalf of a company against one or more of its director(s). This threshold may not be crossed by many shareholders in Bulgarian companies, particularly in listed ones, which have historically had very low free floats. It is nevertheless a highly useful tool because of the legitimate check-and-balance mechanisms (including regulatory and reputational ones) which it opens up, and shareholders should be encouraged to use it.
NBLO regularly advise on the application of the related legal principles and would be pleased to assist on the topic.