- August 26, 2020
- Posted by: Josiah Hincks Solicitors
- Category: Legal News, News
Shareholders have a statutory right to inspect a company’s register of members free of charge and for any proper purpose. The question of what exactly constitutes a proper purpose came under analysis by the Court of Appeal in a guideline case.
The case concerned a block of flats held on long leases. The three parties to each lease were the landlord, the leaseholder and a leaseholder-owned management company. In exercise of his rights under Section 116 of the Companies Act 2006, one of the leaseholders applied to inspect the company’s register of members. His stated purpose in doing so was to seek a general meeting of the company’s members with a view to removing its directors together with the block’s current managing agents, who had been appointed by the board.
The company refused to comply with the leaseholder’s request on the basis that it had been made for an improper purpose. It asserted that the request was motivated not by concerns relating to the company’s governance but by a desire to interfere in or take control of matters relating to the management of the block. Although an intention to remove the directors was not, of itself, an improper purpose, the company contended that an intention to remove the managing agents was.
The company applied to a judge for a direction under Section 117 of the Act that it was not required to comply with the inspection request. The judge, however, found that the leaseholder’s purpose was entirely proper. Subject to him undertaking that information gleaned from the inspection would be used only for his stated purpose, the judge ordered the company to immediately comply with his request.
Rejecting the company’s appeal against that outcome, the Court noted that, together with his rights as a member of the company, the leaseholder had rights to enforce covenants in his lease. Those two sets of rights were distinct but not mutually exclusive. It was a matter for the leaseholder to choose which rights he should exercise in order to achieve his goal.
It was impossible to draw a sharp dividing line between the covenants and the affairs of the company, whose sole relevant purpose was the management of the block. A complaint regarding the appointment of managing agents who performed that role on a day-to-day basis was central to the objects of the company and the way in which it was run.
The concept of corporate governance did not have the narrow meaning the company sought to put upon it. There was no dispute that, if a general meeting of members were convened, the leaseholder could properly seek a resolution removing the managing agents. His desire to obtain support for such a meeting was thus a proper purpose.