Case law: Court of Appeal clarifies when company can refuse access to its register of shareholders
Companies will welcome guidance on when the court will refuse someone permission to inspect their register of shareholders on grounds the inspection is not for a ‘proper purpose’.
This update was published in Legal Alert - September 2017
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Under the Companies Act, a company can apply to the court to stop someone from inspecting or copying its register of shareholders if it does not think it is for a ‘proper purpose’. However, the Act does not define what amounts to a proper purpose.
A company received a request from an individual for a copy of its register of shareholders. He gave his purpose as to ‘assist and allow shareholders who may otherwise be unaware of their entitlements to reassert ownership or recover benefit of their property’. He stated that he would be sharing the information with Interum Limited, a Gibraltar company, which would use it for the same purpose.
However, he and Interum used it to identify untraced shareholders, and provided that information to sub-contractor ‘researchers’ to trace those shareholders and sell the information to them for profit.
The company itself had already engaged an agency to identify and track down untraced shareholders.
The company applied to court for permission to deny access to the register on grounds it was not clear who would have access to the shareholders’ personal information, and how it would be kept confidential. There was also no apparent protection for shareholders from fraudsters or other wrongdoers.
However, the individual making the request argued that the purpose he had put forward could not be improper as it was something the company itself had commissioned an agency to do.
The High Court ruled that the purpose given was not proper because it was not in the shareholders’ interests because:
- It could be confusing if an untraced shareholder was contacted by two different agencies
- Each of the agencies operated on different terms and conditions, with one being less beneficial to the shareholder
- The individual making the request was not based in the UK and his practice as a tracing agent was in doubt or unknown
- No information was provided about his and Interum’s sub-contractor researchers
The Court of Appeal agreed, and gave the following additional guidance:
- The proper purpose test is objective. The company’s subjectively-held view is irrelevant
- A purpose does not have to be in the shareholders’ interests to be proper
- The court can look beyond the purpose stated in the request, and can decide there are additional/alternative purposes not stated in it, if the facts warrant it
- The court can look at the surrounding circumstances, as well as an objective stated in the request. The request stated could say the searcher intended to contact shareholders with information to their advantage. But the surrounding circumstances – that the searcher intended to charge a fee for disclosing that information - could be taken into account
- A request by a member is not to be treated differently from a request by a non-member. (This contradicts the High Court’s view in this issue)
- A purpose can sometimes be proper in one case, but not in another, depending on the circumstances
- It is legitimate to have regard to ICSA guidance
The guidance on the Companies Act from the Institute of Chartered Secretaries and Administrators (ICSA), ICSA Guidance on Access to the Register of Members: Proper Purpose Test, gives the opinion that a request for access to the register of shareholders is not a proper purpose if it is made by an agency ‘specialising in identifying and recovering unclaimed assets for their own commercial gain by then contracting and extracting commission or fees from the beneficiaries’, unless the company is satisfied ‘that such activity is in the interests of shareholders’.
- Companies should take advice if they receive a request to inspect, or for copies of, their registers and the purpose is to identify and track down untraced shareholders
- If a company has engaged its own tracing agency, it may be able to refuse the request for information for these purposes from a second agency
- Download the ICSA guidance from the ICSA website
Case ref: Fox-Davies v Burberry PLC  EWCA Civ 1129
Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.