22nd October 2014
Under section 116 of the Companies Act 2006 (the Act), any person may request a copy of the company’s register or part of it. The request must contain certain prescribed information, including the purpose for which the information is to be used.
Under section 117 of the Act, a company in receipt of such a request has five working days in which to allow inspection and/or provide a copy of the register or, if it believes the request was not made for a proper purpose, to refer the request to the court. “Proper purpose” is not defined in the Act or any accompanying guidance, leaving the meaning of the term to be interpreted by the courts.
The Institute of Chartered Secretaries and Administrators (ICSA) has, however, offered guidance on the point. According to ICSA, a proper purpose may include shareholders wanting to contact fellow shareholders about matters pertaining to the company, their shareholding or the exercise of their rights. An improper purpose may include a communication to shareholders that the company considers would threaten, harass or intimidate members or would otherwise constitute an unwarranted misuse of the member’s personal information.
In Burry & Knight Ltd v Knight , K, the minority shareholder of two private family-run companies, made a section 116 request. K had been involved in a disagreement with his family members regarding the management of the companies. In his request he stated that he was seeking access for the purposes of (i) studying the current shareholders of the two companies; (ii) writing to the shareholders detailing his concerns regarding the past conduct of the directors; and (iii) raising concerns as to the proposed method of share valuation of the companies, as set out in the company’s articles, and to advise shareholders to join a group to obtain expert advice on the matter.
At first instance, the court found that K had made the request for a mixture of proper and improper purposes – the first two purposes being improper and the third proper. In the court’s opinion, K was motivated by his desire to continue a vendetta with his family members. The court made a “no-access order” under section 117 and also a “Pelling order”, namely an order enabling a party to communicate with shareholders but permitting the company to keep details of the shareholders on the register private. The Pelling order directed that if the companies undertook to circulate to the shareholders an agreed letter from K about the provisions of the articles as to share valuation, they need not comply with K’s request for access to the registers of members.
The Court of Appeal upheld the lower court’s decision (save it allowed K’s appeal against an order to pay costs on an indemnity basis). The Court of Appeal held that the first two of K’s purposes were improper purposes. Writing about the past conduct of the directors could not confer any benefit on the shareholders and was instead an attempt to pursue matters which were now stale or else were an attempt to harass fellow shareholders. The purpose regarding share valuation was, however, a proper purpose. The lower court’s Pelling order dealt with that in an effective manner – it was not necessary to provide K with access to the registers.
The Court of Appeal explained that the words “proper purpose” should be given their “ordinary, natural meaning”. For a member, the proper purpose ought generally to relate to the member’s interest in that capacity and/or exercise of shareholder rights. The Court added that it was not possible to provide an exhaustive definition of what constituted a proper purpose, noting that while the ICSA guidance was helpful it was non-binding.
The Court must satisfy itself what is the purpose of the request and, in that regard, it was not restricted to the purpose as stated in the request. The burden was on the company to show that the request was for an improper purpose. That burden will not be discharged if the company only succeeds in showing that the request is capable of being, or may possibly be, an improper one. The Court stressed that courts should be slow to prevent shareholders from communicating with one another and a strong case was required to prevent access.
The Court said that a court will have to make a no-access order if any of the purposes is improper. This difficulty can, however, be resolved by the making of a Pelling order, as in this case.
The Court clarified that section 117(3) – regarding the making of a no-access order where the request is for an improper purpose – applied both to requests from shareholders and to requests from members of the public including journalists.
Companies should review their procedures for dealing with section 116 requests to ensure that they are able to respond within the statutory five-day period.
  EWCA Civ 604