On 1 October 2007, the Companies Act 2006 will introduce some new provisions relating to the inspection and copying of the register of members (see Sections 116-120).
Currently the right to inspect the register of members is set out s356 of the Companies Act 1985 and provides that any member of the company or other person may require a copy of the register or any part of it on payment of such fee as may be prescribed. The company is then obliged to provide such a copy within 10 days after the request has been received. Failure to do so may result in a fine being imposed on the company and a court order being issued compelling the company to release the information.
Following concerns that these rights have been abused in the past (for example using intimidation of shareholders to force a company to withdraw from a contract or using the register for advertising by direct mailing), the Company Law Steering Group reporting in the Modern Company Law for a Competitive Economy Final Report 2001 (para 11.44) recommended that the register of members should only be available for “purposes relevant to either the holding of interests recorded in the register, or the exercise of rights attached to them, and to other purposes approved by the company.” However, the report did not elaborate further on what “purposes approved by the company” could include.
These changes have been brought about in Sections 116 to 119 of the Companies Act which came into force on 1 October 2007. Under Section 116 of the Companies Act 2006, any person seeking to inspect or be provided with a copy of the register of members will need to provide details of their name and address, the purpose for which the information will be used and if the information will be disclosed to any other person, the same information relating to them.
Under Section 117, the company is then given the right to apply to court for relief from this obligation if it believes that the inspection or copy is not sought for a proper purpose. There is currently no specific guidance as to what constitutes a “proper purpose” although it is possible that secondary legislation will be passed to deal with this. Until this time, companies will need to look to at the previous statements of the Company Law Steering Group mentioned above and to past case law for examples of what would be a “proper purpose”. There has been some case law under the existing Section 356 which held that where a copy of the register was provided to enable an individual to circulate material that he wished to be put before the company’s members with a view to securing the removal of the current board and its replacement by himself and his supporters, that this was not a proper purpose (Pelling V Families need Fathers Ltd Ch D 8 March 2002
). There have also been some cases more generally in insolvency law where for example it has been held that the inspection of the bankruptcy register for the purpose of offering individuals included on the register, professional services was not a proper purpose (Re an application under the Insolvency Rules 1986 Ch D 21 January 1994
) and that the multiple inspection of the register of winding up petitions constituted an abuse of the right to inspect the register (Re Creditnet Ltd Ch D 17 April, 8 May 1996
This right is backed up by a new offence, namely that it is an offence for a person to give misleading or false information as to why they want to inspect or obtain a copy of the register or if they disclose information to another person knowing that the other person may use the information for an improper purpose. (s119). This offence is punishable by imprisonment for up to two years or a fine. To date, where individuals have misused details of the register of member (for example to carry out hate campaigns), it is only the most serious cases which are prosecuted, usually under the Harassment Act 1997 or for criminal damage. Section 119 now provides an additional offence which may deter individuals from less serious misuses of the register.
It therefore remains to be seen to what extent legitimate exchanges of views among shareholders and related lobbying for votes, which potentially fall within the statements of the Company Law Steering Group but outside the Pelling line of cases, will be permitted. It is however clear that the new provisions do give companies much greater scope, through a formal and structured process, to protect their members from inappropriate or intimidatory approaches.If you would like any further information on this provision of the Companies Act 2006, or on the Companies Act 2006 more generally please contact Elizabeth Brownsdon or Chris Barrett at Bird & Bird.