Court refuses access to a company register of shareholders

Date Added 18.01.14

Under the Companies Act, a company can apply to the court to prevent someone from inspecting its register of shareholders if it does not believe the inspection is for a ‘proper purpose’. However, the Act does not define what constitutes a proper purpose.

A shareholder was in the middle of a lengthy but intermittent dispute with other shareholders in a family company. He made a request to the company to inspect its register of shareholders, giving these reasons:

  • to study the current membership;
  • to write to the shareholders to tell them about the directors’ alleged mismanagement of the company over the last thirty years;
  • to write to warn other shareholders about future valuations of the company.

The Court ruled that the first two reasons were not proper purposes, although the third potentially was. Particularly, it said that the allegations of mismanagement were ‘without value or utility to the company or its shareholders’, so a request made with a view to advancing them was not a proper purpose. It ruled that if multiple reasons are given for an inspection and any one of them is improper, the court can prevent the inspection.

It ruled that the shareholder could not inspect the register of shareholders, ordered him to pay the company’s legal costs for making the application and ruled that the company did not have to comply with any future requests from him to inspect the register of shareholders.

The Institute of Chartered Secretaries and Administrators has published useful free guidance on the Companies Act rules on inspecting the register of shareholders, ‘ICSA Guidance on Access to the Register of Members: Proper Purpose Test‘, but it did not help in this case as it was outside the examples contained in the guidance.

Recommendations

  • Companies should take advice if they receive a request to inspect its registers in circumstances indicating a general ‘vendetta’ against the directors, as this may be an improper purpose.
  • If any of the reasons given for an inspection are not proper purposes the company can apply to the court to refuse the inspection and claim the costs of the application from the other side.
  • Download ICSA Guidance on Access to the Register of Members: Proper Purpose Test from the ICSA website.

Case ref: Burry & Knight Ltd & Anor v Knight [2014] EWCA Civ 604

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