In Burry & Knight Limited & Another v Knight, the Court of Appeal considered, for the first time, the refusal of a shareholder’s request for access to a company’s register.
The Companies Act 2006 sets out specific rules requiring companies to keep a register of members. These must be available for inspection by any shareholder or, subject to the payment of a prescribed fee, to any member of the public. Anyone making a request to access the register of members must give certain details to the company, including the purpose for which the information is to be used. Upon receipt of a request, a company then has 5 working days to allow inspection, or if it believes the request is not for a proper purpose, to refer the request to the court, who will determine whether or not access should be granted under section 117 of the Act based on whether the request has been made for a proper purpose or not.
The case of Burry involved a minority shareholder, Mr Knight, who had an ongoing disagreement with his family members regarding two family run companies. Mr Knight made a request to access the register of members for both companies, giving the following purposes for his request:
- To study the current shareholders of both companies
- To write to the shareholders detailing his concerns about past conduct of the directors
- To raise concerns over the proposed method of valuation of the shares in the companies, as set out in the companies’ articles, and to advise shareholders to join a group to obtain expert advice on this matter
The companies applied to the Registrar of the Companies Court for a “no-access order” under section 117. The Registrar granted the “no-access order”, finding that the request was made for a mixture of proper and improper purposes, and ordered Mr Knight to pay the companies’ costs.
Mr Knight appealed to the Court of Appeal. His appeal to access the register was dismissed for similar reasons given by the Registrar and his appeal on costs was allowed. It was held that the first two of Mr Knight’s purposes (above) were not proper purposes and that Mr Knight’s intention to write to shareholders about directors’ past conduct could not confer any benefit to the other shareholders but was rather an attempt to pursue matters that were stale or to harass fellow shareholders. Further, although the third purpose could be considered a proper purpose, under section 117 the courts could make a no-access order if any one of the purposes is deemed improper.
In coming to the decision, Mr Knight’s past conduct was significant; including the fact he had been given access to the register on previous occasions but did nothing. The Court of Appeal found that the Registrar was entitled to conclude that Mr Knight’s proper purpose was one of mischief and to pursue a personal vendetta, the resolution of which would not be of value or concern to the shareholders and this was an improper purpose.
The Act does not define what is meant by “proper purpose” and in giving its judgment the Court of Appeal has given some useful guidance.
The Court of Appeal made the following observations:
The Act reflects a strong presumption in favour of shareholders for transparency. The onus is therefore on the company to satisfy the court that a request is for an improper purpose.
The words “proper purpose” under section 117 should be given their “ordinary, natural meaning”. For a shareholder, proper purpose ought generally relate to the shareholder’s interest in that capacity and to the exercise of shareholder rights.
Whilst it was not possible to provide an exhaustive definition of what is proper purpose, the courts could have regard to a guidance note from the Institute of Chartered Secretaries and Administrators (ICSA) which gives examples of proper and improper purpose, although the guidance is non-binding.
Where there are multiple purposes (some proper and some improper), a proper purpose is not necessarily tainted by being coupled with an improper purpose. The right approach is to read the words “a proper purpose” in section 117 as including “proper purposes” where there is more than one of them. Minor additional purposes of no consequence can be disregarded as de minimis.
The court can grant conditional access. In this case, Mr Knight was permitted to contact the shareholders via the companies, whereby a letter would be drafted and agreed between Mr Knight and the companies’ solicitors and this would then be forwarded by the companies to other shareholders.