Disclosing the shareholder register: Court rules that listed company does not have to open its register to an asset search agent

Every year in the UK, over 2 million people move house and over 600,000 people die – events which contribute to an estimated £20 billion of lost assets lying dormant in UK financial institutions. Tracing the rightful owners of these lost assets is a business in itself, with the successful asset search agency taking a cut from the amount due to the owner.

Many UK listed companies contract with an asset search agency to locate missing shareholders and reunite those shareholders with unclaimed dividends, cash or shares. Asset search agencies also operate on a freelance basis, without authorisation from the company itself.

This month a listed company succeeded in frustrating a freelance asset search agent in favour of its appointed search agency, with the court ruling that the listed company did not have to disclose its shareholder register (more properly known as the “register of members”) to the freelance agent. An asset search agency requires access to a listed company’s shareholder register in order to begin its search because, unlike the records held at Companies House, a listed company’s register of members contains the names and addresses of its shareholders. The court found that the freelance agent’s request for a copy of the register was not for a proper purpose.

Surprisingly, this is the first case to consider the “proper purpose” test in the context of inspection of the register of members of a listed company. As such, it will be of interest to any listed company which wishes to control access to its register.

Request to inspect or copy a register of members

The register of members of any UK company is open to inspection or copy by anyone, subject to that person making a request which complies with certain statutory requirements as set out in Section 116, Companies Act 2006. If the person making a request is not a member, he must also pay a nominal fee. The request must contain the following information:

• the name and address of the individual making the request, or the individual responsible for making the request on behalf of an organisation;
• the purpose for which the information is to be used; and
• whether the information will be disclosed to any other person, and if so the name and address of the relevant individuals and the purpose for which they will use the information.

A company which receives a compliant request has five working days either to comply with the request or apply to court. The court can direct the company not to comply with the request if it is satisfied the that the inspection or copy is not sought for a “proper purpose”.

Proper purpose test

“Proper purpose” is not defined in the legislation. Whether or not a request is proper will depend on the facts, looking at the context of the company, its relationship with its shareholders, its trading and the request made. The onus is on the company to demonstrate to the court that, on the balance of probabilities, the person making the request is doing so for an improper purpose. Useful guidance on the proper purpose test has been published by the Institute of Chartered Secretaries and Administrators but that guidance is non-binding on the Court and non-exhaustive.

The arguments in this case

In this case, the company argued that it was not clear who would be given access to the register, as the person making the request himself contracted out the tracing to other parties. The company was concerned that there were insufficient measures in place to ensure security of information, particularly as the person making the request was based outside of the UK, and potentially a significant number of third parties would receive personal information relating to Burberry’s members. The company argued that a “nakedly commercial enterprise” such as the one run by the freelance agent was not in the interests of shareholders when Burberry had an existing arrangement with an asset search agency which was already doing the same job.

The Court’s conclusion

The Court drew a distinction between cases where the request is being made by a shareholder and a request by a member of the public.

In the case of a request by a shareholder – for reasons of “shareholder democracy”, corporate transparency and the promotion of good corporate governance – there is a “strong presumption” in favour of disclosure. However, even here there are limits: one example where a request by a shareholder was refused as being for an improper purpose was where the shareholder intended to “harangue” the other shareholders (Burry & Knight Ltd v Knight [2014] CA).

Where a member of the public makes a request, the emphasis switches from shareholder democracy to protection of the shareholders as a class. In this case, the Court placed reliance on the ICSA guidance, which states that a request by an asset search agency will be improper “where the company is not satisfied that such activity is in the interests of shareholders”. The Court found that the real purpose of the freelance agent would not be in the interests of Burberry’s shareholders because of the confusion that would be caused by two or more search agencies working under different terms and conditions approaching Burberry’s shareholders, and because the person was based outside of the UK and was unknown. So, on the balance of probabilities, the Court held that the request was not for a proper purpose.

Osborne Clarke comment:

On the face of it, this was a surprising result given that the purpose of the person making the claim (tracing missing shareholders) was one approved by the company. Indeed, the company had itself appointed an agent for this very purpose.

Crucial to the decision was the distinction made between requests by a shareholder and requests by members of the public. This is the first time that this distinction has been made, and it introduces a “protection of the shareholders” test for requests from outside agencies.

This case will make it easier in the future for companies to argue that they should not have to comply with such requests. It may also deter requests from outside agencies as they could be held liable for the company’s legal costs if a court rules that the request is not for a proper purpose.

A note about time limits…

A curious point in this case was that the company had failed to make its application to Court within five days of receiving the request. However, the Court held that, as the request did not comply with the statutory requirements (because it did not list all of the individuals to whom the information would be disclosed), the time limit did not apply. That also meant that there was no valid request against which Burberry could have applied to court at all, although, in order to allow the case to be heard, the parties accepted that the last request sent by the freelance agent was valid.

Source: Burberry Group PLC v Fox-Davies [2015] EWHC 222 (Ch)