Special Audit

A special audit is the examination by an independent expert of specific events necessary for shareholders to exercise their rights (TCC Art. 438-444). It is one of the strongest tools available to a shareholder where management refuses or fails to provide adequate information.

Conditions

• The shareholder must have already exercised its right to information or inspection on the events concerned.
• The special audit must be necessary for exercising shareholder rights.
• The request may be made at the general assembly even if not on the agenda.

Process

1. Request at the general assembly: Any shareholder may ask the general assembly for specific events to be clarified through a special audit.
2. Acceptance: If the general assembly accepts, the company or the shareholder may ask the court to appoint a special auditor within thirty days.
3. Rejection: If the general assembly rejects the request, shareholders meeting the minority threshold may ask the court to appoint a special auditor within three months. The court requires a credible showing that the founders or company organs breached the Code or the articles and that the breach may harm the company or shareholders.

The Special Auditor’s Work and Report

The special auditor examines the company’s books and records and obtains information from managers. To protect trade secrets, the report is shown to the company before publication. The report is submitted to the general assembly and made available to shareholders. Costs are generally borne by the company.

Consequences

The special audit report may form the basis of actions on directors’ liability, annulment of general assembly resolutions or requests for dissolution for just cause. An independent audit of the financial statements does not remove the need for a special audit, because a special audit focuses on specific events.