Taking the register: the essential components for requesting to see a company's shareholder register
Published on 19th Jul 2022
Where a company wishes to resist a statutory request to see the shareholder register, it can look for strict and exact compliance with the statutory regime, including the need for a 'proper purpose'
By law, every company must keep a register of every one of its members, although it is not published. As such, the identity and addresses of those members can constitute very valuable information, particularly for activist shareholders wishing to drum up support for their initiatives.
Under section 116 of the Companies Act 2006, a member can make a request to see a copy of the register free of charge and a non-member can make such a request in exchange for a fee. A section 116 request is the only way that a non-director is able to obtain a full list of the names and addresses of all the current members of a company. Improper refusal or default of inspection may be a criminal offence by the company and every officer of the company who is in default, but the company has only five working days to decide how to respond.
In practice, requests to inspect a company's register of members are often a tactic during a dispute for control over that company. Importantly, a company has the ability under section 117 of the Act to obtain a court order that it does not have to comply with the request, but only if the company can show that the request has not been made for a "proper purpose".
The stumbling block here is that there is no definition in the Act of what is meant by a "proper purpose". There have, however, been several cases in recent years in which the courts have provided some clarity: In re Burry & Knight Ltd (2014), Burberry Group plc v Fox-Davies (2017) and Houldsworth Village Management Co. Ltd v Barton (2020). The latest is the Court of Appeal's decision in 2021 in Sir Henry Royce Memorial Foundation v Mark Gregory Hardy (2021).
Alleged wrongdoing by directors of linked entity
The claimant was a company limited by guarantee and the defendant was one of its members. The defendant was also the finance director of another company, the Rolls-Royce Enthusiasts' Club, which was a linked but not legally related entity.
During his tenure as the club's finance director, the defendant claimed to have uncovered serious wrongdoing on the part of a number of the club's directors, who were also directors of the claimant.
On 10 February 2020, the defendant requested access to the claimant's register of members in order to contact the members and convene a special meeting for the purposes for (a) inviting the directors to explain their failure to convene an AGM according to the claimant's articles of association, (b) distributing the claimant's annual accounts, and (c) removing five directors of the claimant from office on the basis of their alleged wrongdoing in their capacity as directors of the club.
However, in contravention of section 116(4)(d) of the Companies Act, the defendant's request did not contain details as to (i) whether the information would be disclosed to any other person, or (ii) the purpose for which the information was to be used.
On 13 February, the claimant, via its solicitors, wrote to the defendant refusing him access to the register and informing him that it would be applying to the court under section 117 of the Act for an order that it was not required to comply with the request. The defendant replied fifteen minutes later asserting that he had "inadvertently omitted" to include the details required under section 116(4)(d) and confirming that he had no intention of disclosing the information to other parties.
The claimant argued at trial that the defendant's request was invalid as it stated only that the defendant had no intention of disclosing the information, and therefore did not contain the required statement under section 116(4)(d). In contrast, the defendant asserted that the omission of the relevant statement was inadvertent and had in any event been rectified by his subsequent email.
The court found in the claimant's favour that, while the defendant's wording was valid, the original request could not be rectified. Moreover, the 13 February email did not amount to a new request, and the defendant's 10 and 13 February emails could not be taken together to comprise a single request. Of particular importance to the court was that a company ought to know where it stands upon receipt of a section 116 request, particularly given the short timescale by which it must respond or otherwise face criminal sanctions.
The court therefore held that the claimant was not required to comply with the defendant's request.
Consideration of proper purpose
Although not essential to its decision, the court then considered whether, if the request had been valid, inspection of the register had been sought for a "proper purpose" (section 117(3)). In doing so, the court considered the three reasons for which the defendant said inspection was necessary.
The court found that it was proper to seek to call a meeting, both so that the directors could explain their failure to convene an AGM and for the distribution of annual accounts. However, the purpose of removing the five directors was "a little more difficult", since the alleged wrongdoing was in respect of their activities as directors of the club and not of the claimant.
His Honour Judge Paul Matthews emphasised that he was not saying "it can never be a proper purpose to seek to remove from office the director of a company who is alleged to have committed some serious misconduct in another capacity". However, in this case there was nothing alleged against the five directors in their capacity as directors of the claimant that would justify the request for details of the members to call a meeting for the purpose of removing them from office as directors of the claimant. That was not a proper purpose.
Given that one of the three purposes behind the section 116 request was improper, had there been an obligation to comply with the defendant's request, the court would have granted a no-access order in respect of the entirety of the request.
Fear of misuse by the defendant
The claimant had also sought to persuade the court to refuse the section 116 request on the basis that the defendant was a serial and vexatious litigant, and that it was likely that he intended to use the information for the purpose of threatening, harassing or intimidating members. However, the court held that the defendant's background did not automatically mean that his case should not be believed. Moreover, it noted that the court does not have a general discretion to direct a company not to comply with a request; rather, the claimant must establish an improper purpose on the balance of probabilities.
The detail of a company's shareholders is a closely guarded secret. Where it wants to resist a statutory request to see the register, a company can and will look for strict and exact compliance with the statutory regime. This case serves to emphasise that omissions are likely to automatically render the request invalid and corrective statements may not validate it retrospectively.
The question of "proper purpose" remains key and applicants would do well to remember that less may be more when it comes to putting forward a list of purposes. Any improper purposes may render the whole request invalid, and it would be a good idea to seek legal advice before making, or responding to, a section 116 request.