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Register of members: a proper or improper purpose

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By Nick Ball

Any person may inspect and require a copy of a company’s register of members if they submit a request which, among other things, states the purpose for which the information is to be used. Usually, such a request would be made by a member of the company free of charge, but a non-member can also make such a request and would have to pay a prescribed fee to the company.

This right to inspect or require a copy is a statutory one under the Companies Act 2006 and, where a company receives such a request, it has five working days from receipt to allow inspection and/or provide a copy of the register, or, if it believes that the request is not sought for a proper purpose, to refer the request to the court.

If the company applies to the court, and the court is satisfied that the inspection or copy is not sought for a proper purpose, it must direct the company not to comply with the request, and it may also order that the company’s costs be paid. Unless a company obtains such a court order, it must comply with a request and failure to do so is a criminal offence.

It is, therefore, important that directors of companies are aware of this right and the company’s obligations in relation to it but, while this right of inspection or copy is contained in the Companies Act 2006, the legislation does not define what a “proper purpose” is. The question, therefore, falls to be decided by the courts and the Court of Appeal has recently considered this issue in the case of Houldsworth Village Management Co Ltd v Barton [2020].

Before commenting on the decision reached in the Barton case, it is important to understand what a company’s register of members is. In our experience, many directors, particularly of smaller companies, are unaware of such a register or their duties, as directors, to maintain the same, let alone where it is kept and whether the information is correct and up-to-date.

By law, every company must keep a register of its members and every person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company, so it is a very important register. Historically, the register of members was a hardback or loose leaf register that included, among other things, the names and addresses of the members, the date on which each person was registered as a member and the date of which any person ceased to be a member. However, in recent times, the register of members is often kept electronically, either by accountants or other providers of company secretarial services, or, in the case of a private limited company, on the public register at Companies House, and it forms part of the much wider statutory registers that a company is obliged to keep and maintain.

Turning to the case in point, it involved a leasehold management company that was responsible for the management of residential apartments. Mr Barton, who was both a leaseholder and a member of the company, made a request to inspect the company’s register of members. In his request, he stated that the purpose for which the information was to be used was to contact his fellow members with a view to seeking a general meeting of members and proposing resolutions to remove and replace the existing directors and the managing agent.

The company sought a declaration objecting to Mr Barton’s request on the basis that, while seeking to remove directors may be a proper purpose, replacing its managing agent was not. The High Court dismissed the company’s claim in the autumn of 2019, but the company appealed against the decision on the basis that Mr Barton’s purpose was improper as it did not relate to his rights as a member of the company.

On 29 July 2020, the Court of Appeal dismissed the appeal and concluded that:

  • a member who is seeking to communicate with other members to challenge, in good faith, the way the company is being run should normally be regarded as having a proper purpose;

  • while there is a clear distinction between the rights of a leaseholder in that capacity and the rights of a member of a company in that different capacity as a member, those rights are not necessarily mutually exclusive; and

  • Mr Barton’s attempt to exercise his rights as a member through a general meeting was not improper, even if the ultimate remedy sought (i.e. removal of the directors and appointment of a new managing agent) could be achieved by another route.

Interestingly, Mr Barton had made an earlier request for an inspection of the register of members of another unrelated property management company, of which he was a member. In that case, called Pandongate House Management Co Ltd v Barton [2019], the High Court had held that the purpose of Mr Barton’s request was an improper one because he wanted to contact other leaseholders to invite them to support him in challenging the service charge and removing the managing agents, and also to harass the company or harm its members. The court concluded that Mr Barton’s purpose was, therefore, to further his interests as a leaseholder and had nothing to do with his interests as a member of the company.

However, in the case of Houldsworth Village Management Co Ltd v Barton [2020], the Court of Appeal makes it clear that a request by a member does not need to relate to the interests of the member in their capacity as a member of the company, and that the question to ask is: whether, on the facts and circumstances of the particular case, the request is a proper one or not?

This decision will be of interest to those involved in leaseholder-owned management companies, and also to those involved in companies more generally who may be faced with a request from any person to inspect and/or require copies of a company’s register of members or who may wish to make such a request.

Our experienced Business Law team is able to assist you and your business with statutory registers and complying with obligations generally. If you have any questions or would like to know more about how we can help you with a business issue you may have, please get in touch with Nick Ball, Senior Associate in Business Law. For residential landlord and tenant matters, please contact David Stockley, Partner in Enfranchisement.