Illinois Court decides that a director of a privately held corporation has presumptive right to inspect corporate documents that can be denied, however, if the purpose for inspection is improper or illegitimate.
In Munroe-Diamond the First District Appellate Court has carved out a new set of rules for a Director's access to the books and records of a corporation which could be used to thwart a minority shareholder's access to those records.
In a fascinating new case, the Court held that the allegations set forth in an affirmative defense by the majority shareholders that "the litigation was commenced for the sole and exclusive purpose of forcing the Defendants to either purchase the Plaintiffs' stock at an excessive premium, or forcing the Corporation to liquidate, close its doors and put over 100 employees out of a job," that the litigation was "brought this action in an attempt to leverage a buyout of their shares of the Corporation at a higher value than is appropriate" and that they have "made numerous And that the request for documents was overbroad, unduly burdensome and disproportionate for the sole purpose of harassing the Defendants and not for a good faith purpose" in their roles as Directors of the Corporation. adequately pleaded that the "object and purpose" of the inspection "was not legitimate," that it was unrelated to performing their roles as directors, and that it was intended to "injure the corporation."
We strongly recommend that shareholders and directors of privately held corporation carefully consider how this decision might affect the right of access to their corporation's records in the future.