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What is the proper purpose for inspection of a company's register of members by a member of the public who is not a shareholder?
In the recent case of Burberry Group plc v Richard Charles Fox-Davies  EWHC 222 (Ch), 9 February 2015, the High Court considered what might constitute a proper purpose for a member of the public to inspect a company’s register of members. In Burberry, the High Court held that a company did not have to let a member of the public inspect its register of members.
Request to inspect a company’s register of members under the Companies Act 2006
Under section 116 of the Companies Act 2006 (the Act), any person is entitled, on payment of the relevant fee, to inspect a company’s register of members and be provided with a copy of the register. However, the person who wishes to inspect a company’s register of members must submit a request containing certain information, including the purpose for which the information is to be used. Where a company receives such a request, it has, under section 117 of the Act, five working days to allow inspection and/or provide a copy of the register. Alternatively, if the company believes that the request was not made for a proper purpose, the company may refer the request to the court. If the court is satisfied that the inspection is not sought for a proper purpose, the court must direct the company not to comply with the request. However the Act does not define what “a proper purpose” is, and this is therefore left to the court’s discretion.
The Institute of Chartered Secretaries and Accountants (ICSA) released some guidance in 2007, amended in 2009, which dealt with access to the register of members and the proper purpose test. Since, at the date of publication, no application to court under section 117 had been made, the guidance gives examples of what constitutes a proper purpose and what constitutes an improper purpose. An example of an improper purpose is “requests from agencies which specialise in identifying and recovering unclaimed assets for their own commercial gain by then contacting and extracting commission or fees from the beneficiaries, where the company is not satisfied that such activity is in the interests of shareholders.”
Consideration of a “proper purpose” by the courts
The court considered what could constitute a “proper purpose” under section 117 for the first time in 2014, in Burry & Knight Limited & Another v Knight  EWCA Civ 604. In that case, the court held that a proper purpose ought generally, in the case of a member, relate to their interest in that capacity and/or to the exercise of shareholders’ rights. The court also held that a minority shareholder’s request to access the register of members of two family run companies was not sought for a proper purpose, since the reason why the minority shareholder was seeking access to the register of members was not likely to confer any benefit on the members and was an attempt to pursue “stale” matters.
The Burberry case
In Burberry, the request to inspect the company’s register of members came from an individual (F) specialising in tracing “lost shareholders.” F himself was not a member of the company. F’s request stated that the purpose for which he wished to inspect the register of members was “to assist and allow shareholders who may otherwise be unaware of their entitlements to reassert ownership or recover the benefit of their property.” The company had for some time engaged its own tracing agent on terms that were more favourable than the terms offered by F. The company made an application to court for a direction that it did not need to provide access to the register of members to F. The company argued that F’s purpose was not proper. Additionally, F had not included the names and address of any individuals with whom he was going to share the information, as required by the Act.
The High Court held that the company did not have to comply with F’s request as it was made not for a proper purpose, but for F’s own commercial self-interest. The High Court held that different considerations arise in respect of member access to the register of members, and access by a member of the public. There is a “strong presumption” in favour of shareholder democracy, a policy of corporate transparency and the promotion of good corporate governance, and as a result, the Court’s approach to a member’s request will be that access should be granted if the purpose relates to the member’s rights. The company may satisfy the Court on the balance of probabilities that the request is improper. The strong presumption of shareholder democracy does not, however, apply to a non-member and the emphasis switches to the protection of shareholders.
The High Court also found that F’s request was invalid because it did not set out all the information required by the Act.
Implications of the Burberry case
The Burberry case makes is clear that a company need not comply with a request for access to its register of members unless that request complies in full with the requirements of the Act. Additionally, whether the request is made for a “proper purpose” may depend on the identity of the person making the request and whether they are a shareholder or not. The courts’ analysis of “proper purpose” will have regard to the application of shareholders’ rights and shareholder protection.
For more information, please contact Pippa dos Santos, Corporate Associate