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Burry & Knight Limited - Access To A Company’s Register Of Shareholders

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Previously anyone could obtain access to a company’s register of shareholders. However, the continuous abuse of access to the statutory register of shareholders resulted in tighter legislative controls governed by the Companies Act 2006 (“CA 2006”).

The law now states the following:

  1. A person seeking access to the register of shareholders must make a request for access which states the purpose of the request (section 116);
  2. The company may within five working days apply to the Court for an order relieving it from any obligation to comply with the request (section 117);
  3. The Court must make a no access order if it is satisfied that the request fails the “proper purpose test” under section 117 (3). What is or is not a proper purpose has not been defined in the CA 2006 and is a matter for the Court to decide; and
  4. Unless a company obtains a no access order, it must comply with a request for access as non-compliance incurs a criminal penalty (section 118).

In Burry & Knight Limited & Another v Knight [2014] EWCA Civ 604 the Court of Appeal (“COA”) considered for the first time the prevention of access to a company’s register of members.

In this case the request for access to the register of shareholders was made by a minority shareholder of two family-run companies. The minority shareholder had certain historic complaints about the conduct of the companies businesses and required access for the following purposes:

  1. To study the current shareholders of both companies;
  2. To write to the shareholders and trustees detailing concerns about past conduct of directors; and
  3. To raise concerns about the proposed method of valuation of the shares and also advise shareholders to join a group to obtain advice from an expert accountant and lawyer on future matters.

The registrar found the first two points above as being improper and the third point as being proper. The registrar further stated that the first purpose “was simply window dressing designed to disguise other purposes”. Faced with a mixture of proper and improper purposes the registrar held that the companies were not bound to comply with the request.

The COA agreed with the registrar and provided the following guidance:

  1. The onus is on the claimant company to demonstrate that the request is for an improper purpose;
  2. The words “proper purpose” should be given their “ordinary, natural meaning”;
  3. The first step for the Court is to establish what the purpose of the request is and, in doing so, it is not restricted to the purpose as stated in the request document;
  4. It is not for the Court to decide if the information provided to shareholders will be of value, as this would involve the Court making a commercial judgement. However, the proper purpose ought to generally, in the case of a member, relate to the members interest in that capacity and/or to the exercise of shareholder rights; and
  5. The Court may refer to the guidance notes issued by the Institute of Chartered Secretaries and Administrators (“ICSA”).

An example of an improper purpose given in the ICSA guidance is access which would “threaten, harass or intimidate members”. In light of the minority shareholders historic complaints about the directors, the COA took the view that his intended purpose of writing to the shareholders about the directors' past conduct could not confer any benefit on the shareholders and was an attempt to pursue other matters. The COA concluded that his real purpose was to harass fellow shareholders.

The case demonstrates the Courts’ approach when establishing the proper purpose by taking into account the circumstances of the request. Moreover as the case does not provide an exhaustive list of what is regarded as a proper purpose, it confirms the importance for companies to have adequate procedures in place to deal with requests and make any necessary applications within a short timeframe. 

“This information has been prepared for the clients and contacts of hlw Keeble Hawson Solicitors.  The information and opinions expressed in this articled are not comprehensive and do not purport to give nor do they constitute professional advice. For further information please contact Michael Cantwell or Saiema Sarwar.”
 

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