My co-director isn’t letting me see the accounts, what can I do?

What’s the problem?

One of the statutory duties of a director is to exercise reasonable care, skill and diligence in relation to the company’s affairs. It’s hard to see how a director could be said to be complying with that duty if they don’t have financial oversight of the company.

The obvious first step is to say to the co-director “Please show me the accounts.” (The word “please” is optional…). If the co-director refuses, then you might need to take urgent action in one of two ways.

What does the law say?

Section 386 of the Companies Act 2006 states that every company must keep “adequate” accounting records, including those which show and explain the company’s transactions and which show the financial position of the Company with reasonable accuracy at any time.

Section 388 says that the accounting records must be at all times open to inspection by the company’s directors, and must be retained for at least three years (six years for a public company).

What are the consequences?

Breach of the requirement to make those accounting records open to inspection means that a criminal offence has been committed by every director and secretary of a company in breach. That could include you.

However, it is a defence to show that you acted honestly, and “in the circumstances in which the company’s business was carried on, the default was excusable”.

Do I have a defence?

That really depends on a lot of factors, and you need to take legal advice on your specific situation. It seems likely that you will need to at least show:

• You were being deliberately kept out of access to the records by your fellow directors
• You demanded that your directors give you ongoing access to the records
• You contacted the accountants directly to assert your rights to the records
• You repeatedly made these requests
• You called a board meeting and raised the issue

What can I do if they still won’t give me the records?

You have a difficult decision to make. Doing nothing isn’t really an option, because it leaves you in breach of your duties and potentially liable for a criminal offence. That leaves you with two main options:

• Resign as a director
• Make an application to the court for urgent remedies

Tell me more about resigning as a director

You need to think carefully and take specific advice on this point.

You can resign as a director at any time for any reason. Your resignation will be effective immediately (unless there’s a director service agreement which gives a notice period) and it can’t be blocked.

If you resign, you won’t be liable for any future breaches by the Company, but it doesn’t eradicate any past breaches.

If you’re a shareholder, you may prefer to keep your oversight and governance of the company. However, I would argue you didn’t have much oversight and weren’t exercising much governance if you allowed a company to trade without being able to see its books.

If you do decide to resign, you should do it in writing, addressed to the company and its board of directors, and you should explain your precise reasons for your resignation.

Tell me more about making an application to the court

Again, you need to think carefully and take specific advice on this. Any court application costs significant amounts of money to make, and if you lose you might be ordered to pay the other side’s costs.

Your application would be for an injunction requiring the Company to give you the ability to inspect the records and for the directors and secretary to comply with its obligations. That will be a very technical application, and you should instruct an experienced lawyer from Pinpoint Lawyers to carry that out.

Can Pinpoint Lawyers help me if a director is preventing me from seeing the accounting records?

We specialise in company disputes and so we would be very happy to advise you about the best course of action to take in your particular circumstances.