Any person is entitled, on payment of the prescribed fees, to inspect a company’s register of members and index of members, and to be provided with a copy of the register (or any part of it), but these rights are subject to that person submitting a request which contains certain prescribed information, including the purpose for which the information is to be used (sections 116 and 117, Companies Act 2006) (CA 2006).
Where a company receives a section 116 request for access, it has five working days from receipt of that request to allow inspection and/or provide a copy of the register, or, if it believes that the request is not made for a proper purpose, to refer the request to the court (section 117, CA 2006). Under section 117(3) of the CA 2006, if the court is satisfied that the inspection or copy is not sought for a proper purpose, the court must direct the company not to comply with the request by making a “no access order”, and it may make a further order regarding the company’s costs. If the court makes a no access order and it appears to the court that the company is or may be subject to other requests made for a similar purpose (whether made by the same person or different persons), it may direct that the company is not to comply with any such request (section 117(4), CA 2006). As the CA 2006 does not define a “proper purpose”, the question of what is a “proper purpose” falls to be decided by the courts.
In Burry & Knight Limited & Another v Knight, the Court of Appeal considered, for the first time, the prevention of access to a company’s register of members under section 117 of the Companies Act 2006. It held that a minority shareholder’s request to access the register of members of two family-run companies was not sought for a proper purpose as 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 matters which were stale, or that his real purpose was to harass his fellow shareholders.
Although one of his purposes (regarding raising concerns over share valuation) was potentially a proper purpose, the test under section 117 was that access to the register did not have to be given if one of the purposes of the request was not a proper one. Rather than allowing the shareholder direct contact to the other shareholders, his concerns over the share valuation issue could be dealt with by a Pelling order under which the companies undertook to circulate an agreed form of letter to the other shareholders.
In reaching its conclusions, the court offered some guidance on the proper purpose test under section 117(3) of the Companies Act 2006, including that the words “proper purpose” should be given their “ordinary, natural meaning” and in the case of a member, the proper purpose ought generally relate to the member’s interest in that capacity and/or exercise of shareholder rights. The court stated that it is not possible to provide an exhaustive definition of what is a proper purpose but that the court may have regard to non-binding, non-exhaustive ICSA guidance on this matter. The onus is on the company to demonstrate to the court that it should be satisfied (on the balance of probabilities) that the request is for an improper purpose.
Companies should consider what procedures they have for dealing with requests for access to the register of members so that they can assess quickly whether a request is likely to be for an improper purpose as under section 117 of the CA 2006, they only have five working days to either comply with the request or apply to the court for a no access order.
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