Monday, 19 May 2014

UK: England and Wales: proper purposes and company register inspections

Section 116 of the Companies Act 2006 provides that a company's register and index of members' names must be open for inspection by a shareholder without charge and any other person on payment of a fee. It also provides that any person may require a company of the company's register of members, or part of the register, on payment of a fee. Section 117 provides that a company need not comply with a request under Section 116 if an application is made to the court and the court is satisfied that the inspection or copy is not sought for a proper purpose. The operation of section 117 has recently been considered by the Court of Appeal in Burry & Knight Ltd v Knight [2014] EWCA Civ 604. The court upheld the Registrar's decision to grant an order permitting a company not to comply with a request under section 116. In doing so, Lady Justice Arden set out the purpose of section 116 in the following terms (paras. [24] and [25]):
Unless a company obtains an order under section 117(3) it must comply with a request for access and a criminal penalty is imposed for non-compliance by section 118. This is an important signal that Parliament attached importance to the exercise of the right of access to the share register. I agree with the Registrar that the way the statutory provisions are framed reflects a strong presumption in favour of shareholder democracy and a policy of upholding principles of corporate transparency and good corporate governance. I also agree with the Registrar that these factors point in favour of the court exercising its discretion "sparingly and with circumspection" where requests are made by shareholders to communicate with fellow shareholders. The reasons for this are obvious. If a member cannot communicate with fellow members, it puts the board into a very strong position. The corporate governance of a company is accordingly weakened. The relationship between the board and the shareholders cannot operate as it is intended to operate with the shareholders monitoring the activities of the directors. In my judgment, it would require a strong case to prevent access for these reasons.

Moreover, it is in principle for shareholders to assess whether a communication is of value to them and what action they should take. Parliament cannot in my judgment be taken to have intended the court to take a view about just how far the information which the member seeking access wishes to give him is information of value. This would involve the court making a commercial judgment as to the merits of the requesting member's view and would lead to satellite litigation which would delay a decision on access. In some cases, however, it will be obvious that the information is of no value, as where the information is already known to members or simply nonsense. But if the court is in any doubt, it should not make a no-access order."

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