The risks of transparency on a share register

The right of a person to access a company’s register of members (containing the names and contact details of that company’s shareholders) is a significant element of shareholder democracy and part of the obligations that go hand in hand with the privilege of limited liability. Vitally, this right allows shareholders to communicate between themselves outside of company communication channels. The right has, on occasion, been abused for criminal purposes (notably, the activities of anti-vivisectionists).

The Companies Act 2006 sought to strike a better balance by entitling a company to ask the court to examine the purpose for a request and to deny a request for an improper purpose. What constitutes a proper purpose has been examined for the first time in the recent case of Burry & Knight & Anr v Martin John Murless Knight.[1] Legitimate requests may be made by either a shareholder or a member of the public.

Dr Knight (a shareholder) appealed a no-access order made by the Registrar of the Companies Court, but the original decision was upheld. Dr Knight had given a number of reasons for his request, one of which (relating to share valuation) was accepted as proper. However, the Court of Appeal investigated the stated reasons and found that, besides that one point, Dr Knight’s real purpose was to ‘harass’ other shareholders.

The decision acknowledges that this regime potentially shifts power away from shareholders and towards the company, i.e. the board, and that no-access orders should only be made in strong cases (and not where the company may suffer mere embarrassment). Scrutiny of the reasons behind a request for access may cause delay, and may also put the board on notice of whatever trouble might be brewing (e.g. in advance of an upcoming general meeting) through having to provide justification and explanation for the access.

Burryhas not yet been considered in any subsequent decisions but it does seem somewhat contrary to the current stated policy of the UK Government towards greater transparency.  Indeed, an identical regime is proposed for the Small Business, Enterprise and Employment Bill currently working its way through the UK legislative process as part of a system of registers intended to give every member of the public a right to understand the beneficial ownership structure of every company incorporated in the UK.  Accordingly, it is difficult to see under that new regime that any broad category of no-access would be permitted.

By Rachael Taylor