In Munroe-Diamond v. Munroe1, the Illinois Appellate Court recently addressed the issue of the rights of directors of a corporation to inspect the corporation’s books and records. Section 7.75 of the Illinois Business Corporation Act (BCA) provides shareholders with the right to examine certain corporate records provided that the examination is conducted for a proper purpose.2 However, the BCA contains no corresponding provision regarding the inspection rights of directors. While there is a well-developed body of case law regarding shareholders’ rights to examine books and records, there are very few reported decisions addressing the inspection rights of directors.
Munroe-Diamond arose out of a common fact pattern, a dispute between siblings who comprised the shareholders and directors of a closely held corporation over the value of the corporation’s shares during buyout negotiations. In this particular shareholder dispute, the divide occurred along gender lines. The brothers owned the majority shares of a moving company and the sisters owned minority shares. The board of directors had hired a valuation firm to provide a fair market valuation of the corporation’s stock. That firm valued the controlling shares, all of which were held by the brothers, at nearly twice the value of the minority shares. The board of directors authorized the corporation to redeem the shares held by minority shareholders for slightly more than the appraised value. While other minority shareholders’ shares were redeemed, the sisters refused to sell their shares for the amount offered.3
Rather, the sisters made a demand upon the corporation to make available for inspection and copying any and all documents pertaining to twenty-four listed categories. The demand did not state a purpose for the inspection. The brothers refused to comply with the demand on the ground that no purpose was put forward as to why the sisters needed access to the documents and no explanation was provided as to how the documents related to the sisters’ duties as directors.4