In this case, the Court of Appeal upheld the earlier High Court decision that a request under section 116 of the Companies Act 2006 (CA 2006) by a tracing agent to inspect a copy of a company’s register of members was invalid. This was because it was decided that the request did not contain all the information required by the statute and was made for an improper purpose.
Facts of the case
Mr Fox Davies – the appellant- carries on the business of tracing lost members of companies and reuniting them with their shares for a fee or commission. This may occur when a shareholder does not notify the company of changes of address, which results in companies that are unable to contact their shareholders.
Burberry plc – the respondent- is a well-known public company with a significant number of registered members, resulting also in several ‘lost members’. Burberry appointed a search company, ProSearch Assets Solutions Limited (ProSearch) in 2013 to trace and contact lost members. This allowed members to reclaim their shareholdings either directly from the company or through ProSearch.
The appellant decided to trace missing members of Burberry. Therefore, he submitted a request under CA 2006, s 116 to Burberry for a full copy of its register of members. Burberry responded highlighting that the request did not comply with the requirements of s 116. The appellant then submitted a further request on similar terms, with a fee enclosed. On 2 May 2013, Burberry refused the request again. On 9 May 2013, Burberry issued an application under CA 2006, s 117 for a direction that it should not comply with the request.
Journey to the Court of Appeal
Following a fully argued hearing, at which both parties were represented by counsel, the Registrar held in a reserved judgement that Fox-Davies’ requests did not comply with CA 2006, s116, so that Burberry was not in any event obliged to comply with them, and further that they were not made for a proper purpose.
The registrar granted the direction sought by Burberry on the following grounds: the request did not disclose the names and addresses of the persons to whom the information would be disclosed and the purpose of the defendant’s application for a copy of the register was for his personal commercial benefit and was therefore improper.
The Court of Appeal’s decision
The defendant appealed; the decision was upheld and Fox-Davies’ appeal was dismissed. In applying for a copy of the register of Burberry’s members, the appellant had not complied with the mandatory requirement in CA 2006, s 116(4)(d) . This section requires confirmation whether information would be disclosed to another person, with the names and addresses of those to whom the information relates. Therefore, the request was invalid.
Furthermore, Fox-Davies’ application had an improper purpose as it was being used for commercial exploitation. One of the main purposes of the application was to enable the appellant to persuade shareholders to accept on his terms the need for his services before being informed by him of the nature or value of those services. In deciding this point, the Court held that it was legitimate to have regard to the guidance note on this subject issued by ICSA: The Governance Institute in June 2007. Mr Thornton, on behalf of Burberry, relied on the following example of improper purpose:
“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”.
The court decided that Fox-Davies’ actions fell under this definition and were therefore an improper purpose within section 117(3) of the 2006 Act.
What is next/what is the importance of this case?
This case illustrates when it is appropriate for a company to resist a request for inspection of its register.
It is evident from this case that a company will only be required to provide a copy of its register of members where the application satisfies all the requirements of the CA 2006.
Moreover, the court’s analysis of a ‘proper purpose’ demonstrates a clear distinction between purposes related to the exercise of a shareholder’s rights, shareholder protection and commercial exploitation.