Every company is required to keep an accurate, up-to-date shareholder register.  An annual return or (now) confirmation statement will provide an insight into a company’s membership but the position could change from day to day.  For an accurate picture, an inspection of the register is the only solution.

Under the Companies Act 1985 and now under section 116 of the Companies Act 2006, any person may ask a company to inspect (and potentially take a copy) of its register of members.  Those entitled to inspect a register of members range from a member of the company (who can do so without charge) or any member of the public, who may be charged a prescribed fee.

As part of the request, the person making the enquiry needs to give certain information.  This includes the purpose for which the information contained in the register of members will be used.

The company may either grant the request or apply to court to decline the request on the grounds that the request is not for a “proper purpose”.  The timetable for reaching a decision is short: a company has five working days to decide how they want to proceed.  In the event of an unexpected request, directors do not have long to determine the meaning of “proper purpose”.  If they do not wish to grant the request, responsible directors will be mindful of court costs, whether the application is valid and whether the stated purpose may be regarded as being “proper”.

Guidance on “proper purpose” to date has been relatively thin on the ground.  Non-binding guidance has been issued by the Institute of Chartered Secretaries and Administrators.  In addition, the few court cases have directed that access to the share register:

  1. to enable a member to lobby for replacement of the board of directors with himself and his associates;
  2. to populate a database for the sale of services by the enquirer; or
  3. for the purposes of voicing concerns about the directors do not fulfil the “proper purpose” test.

A case on this issue was heard in 2015 and appealed.  The appeal decision was published in July 2017.  Mr Fox-Davies (who was not a shareholder) was attempting to inspect the register of members of a company in order to sell services to those members.  The court identified and distinguished the inherent conflict within the legislation: a member (and potentially the public) may wish to know the identity of the shareholders and the extent of their shareholdings, but on the other hand the company should have regard to the personal information on the share registers with a view to protecting its members from being harassed.

Whilst each case will turn on its own facts, examples of proper purposes entitling a person to inspect a company’s register of members were identified in the appeal judgement as:

  • members seeking to requisition a general meeting
  • investigation of corporate impropriety
  • investigative journalism into the interests or ownership of shares

The Court of Appeal had regard to “the ‘strong presumption’ in favour of shareholder democracy, corporate transparency and good corporate governance” and distinguished the position of a member (who could have access in order to understand his/her rights) from a non-member who (in this case) sought a copy of the list for his own commercial gain.

The appeal judgement provides a useful checklist for directors facing a section 116 request.  In such circumstances, the court is likely to have regard to:

  1. the “ordinary meaning” of the words and the reasons for their inclusion in the 2006 Act;
  2. the constitution of the company;
  3. the company’s sensitivities regarding access to the information;
  4. an objective assessment by the court as to the purpose of the request;
  5. the purpose not necessarily needing to be in the interests of the shareholders;
  6. the guidance provided by ICSA;
  7. the characteristics of the enquirer; and
  8. once the purpose has been established, an evaluative judgement on the intended use of the information.

The very short timeframe to be able to respond to such a request means that companies should plan in advance the course of action to be taken if they receive a request to view the register of members, particularly in view of the potential court costs.  Whilst the legislation allows courts to order the company’s costs to be paid by the enquirer on a successful defence, significant pressures could be felt on cash flow and management time.  A policy that includes elements of the above will be worth considering.  Failure to respond in time is a criminal offence and renders the company and the directors liable to a fine.

Gavin Poole is a partner in the corporate team at Stephens Scown. If you have any queries then please do contact Gavin on 01872 265100, or by email solicitors@stephens-scown.co.uk.