Shareholder requests: access to register of members

Ultimately, despite making what on the face of it appeared to be a valid request, the Court ruled that the defendant’s failures to strictly adhere to the requirements of s116 and provide a ‘proper purpose’ for the request under s117 invalidated his request and the claimant company was therefore not required to comply with it.

This judgment should offer useful guidance to companies wanting to control access to their register and also to shareholders who may be concerned about having their details released to those wishing to use them for potentially improper purposes. It also serves as a salutary reminder to those making a request for access to ensure they rigidly adhere to the requirements of the Act.

Background to the case

Under s116 of the Companies Act 2006, any person may, upon payment of a nominal fee, make a request to inspect and take copies of the register of members of a company. Any such request made by a member of the company can be made without incurring a charge.

Under s116(4) of the Act, a valid request to a company to access its register of members must contain the following information:

• the name and address of the individual making the request (s116(a)). If the request is being made on behalf of an organisation, the responsible individual’s name and address must also be provided (s116(b));
• the purpose for which the information is to be used (s116(c)); and
• whether the information will be disclosed to any other person or persons (whether an individual or an organisation) and, if so, the names and addresses of those persons and the purpose for which they will use the information (s116(d)).

Under s117 of the Act a company has five days to either comply with the request or apply to the court for a “no access order”. Interestingly, Burry & Knight Ltd v Knight [2014] EWCA Civ 604 (which further clarified the meaning of ‘proper purpose’) also highlighted that the court also has the option to make a “Pelling order” whereby a party is permitted to communicate with shareholders but the shareholders details on the register are kept private.

Any refusal or default by the company in relation to a valid request under the Act is deemed an offence under s118 and can lead to both the company and any responsible company officers facing a summary conviction and a fine.

In this case, the defendant provided three purposes for his request under s116(4)(c) of the Act, namely that he wished to call a meeting of the claimant’s members to:

1. explain the delay in holding the claimant’s annual general meeting;
2. explain the delay in distributing the claimant’s annual accounts; and
3. seek to remove five of the claimant’s directors owing to their gross negligence as directors of another company.

However, the defendant omitted to state in his initial request whether the information would be disclosed to another person as required under section s116(4)(d).

The claimant then informed the defendant by email that owing to this omission it would not allow him access and also informed him that it would be applying to the court for a no access order under s117.

The defendant responded almost immediately by email confirming his omission and making the following statement “I have no intention of making the information available to any other person”. He submitted that his inadvertent error had been corrected by his follow-up email which should be read together with his first request.

The claimant company submitted that his subsequent statement was not sufficient to correct his earlier omission as he did not explicitly state he would not disclose the information to another person.

The Court’s decision

Interestingly, there is no case authority in regard to whether, and under what circumstances, a later correction can be made to a request for access under s116. Perhaps surprisingly, the Court took the view that his follow-up statement was in fact sufficient under the requirements of the Act. However, his overall request was still deemed invalid and the claimant was not required to comply on the following grounds:

1. Firstly, it was held that the defendant had not fulfilled all mandatory requirements at the time of the initial request. The Court highlighted the importance of the company “knowing where it stands” (para 42 of judgment) on the date of the request especially considering it has five days to respond and there are potential criminal sanctions for non-compliance with a valid request. Ultimately the view of the Court was that “a request is either valid or invalid at the time it is made” (para 41 of judgment).
2. Secondly, it was held that even had the defendant submitted a valid request in relation to timings, the Court would still have made a no access order on the basis that one of the defendant’s “stated purposes was improper” (para 54 of judgment). The Court held that it was not a proper purpose to seek the removal of directors in relation to alleged gross negligence in their capacity as directors of another company which “on its face does not directly concern the activities of the subject company” (para 53 of judgment). Under Burry, Arden LJ stated that the words ‘proper purpose’ under s117(3) of the act should be given their ‘ordinary, natural meaning’ and, in respect of a member “relate to the member's interest in that capacity and to the exercise of shareholder rights” (para 46 of judgment).

It was also held there was nothing alleged against the directors in their capacity as directors of the claimant company which would justify the request for members’ details to call a meeting to seek to remove them.

Advice for companies and shareholders in view of the ruling

It is clear that the court will expect all those making a request to access the register of company members to rigidly adhere to all the requirements of the Act and will offer little in the way of latitude to those who try to address omissions in their request at a later time.

Therefore, both companies and shareholders can take comfort from the fact that the court’s view would likely support any refusal for access to a request which is missing any element required under s116 no matter how important the supposed purpose of the request.

The case also provides clarity in relation to what constitutes a genuine and proper purpose for a request for access, specifically in regard to those made by a member of the company. Burry established a “strong presumption” in favour of disclosure of information in response to requests by members in order to maintain corporate transparency and promote sound governance. In Burry, the purpose was not deemed as proper as it was seen to be “without value or utility to the company or its shareholders” (para 120 of Burry Judgment) whilst in this case the request was refused because one of the purposes did not directly relate to the company’s activities despite the validity of the other purposes in the request. Consequently, although companies and shareholders should be prepared for the court to rule in favour of disclosure with respect to valid requests from members, these cases show that the court will strenuously apply the ‘proper purpose test’ to all requests and are likely to refuse all those which are deemed as spurious, vexatious or simply do not relate to or are of no value to the company or shareholders.

In regard to requests made by outside parties, Burberry Group PLC v Fox-Davies [2015] EWHC 222 (Ch) confirms that the court places much more emphasis on protecting the shareholders. The ICSA (The Institute of Chartered Secretaries and Administrators) has also provided some further useful guidance on the proper purpose test stating that any search by an asset search company will be deemed improper “where the company is not satisfied that such activity is in the interests of shareholders”. In view of this, shareholders should hopefully feel reassured that the court will judiciously scrutinise the purposes of any request for access from non-members to ensure that no disclosures are made which run counter to shareholder interests or those of the company.

Finally, it is worth noting that in Burberry Group the court held that the five day time limit under s117 did not apply as the requestor had not complied with the statutory requirements under s116. This may provide some valuable leeway to companies who receive requests which they reasonably believe are missing key information required by the Act. However, companies should still ensure they have procedures in place to enable them to respond within the five day time limit given the penalties for non-compliance imposed by s118.