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Proper or improper

Thu 17 Jul 2014

Access requests to the register: what company secretaries and their legal advisers need to know

Consultant John Heaton clarifies what company secretaries and their legal advisers need to know about access requests to the register which may be for an improper purpose.

When the Companies Act 2006 came into force, section 117 made changes to section 356 of the previous Act, requiring those seeking to inspect or obtain copies of the share register (known as an ‘access request’) to disclose the purpose for which the information was to be used. If the company thinks that this purpose is improper, it can apply to the court for a ‘no access order’. However, the new Act did not define a proper or improper purpose, which was left to the courts to decide.

The Institute of Chartered Secretaries and Administrators (ICSA) issued a guidance note in January 2009, to which Equiniti and a number of our clients contributed, giving examples of proper and improper purposes.

However, this remained untested in the courts. Consultant John Heaton has also recently looked at a Court of Appeal judgement by Mr Registrar Baister in the High Court, Chancery Division (the Registrar), which endorsed the ICSA guidance note, and provides considerable clarification on how the law will be applied and what company secretaries and their legal advisers will need to consider if they receive an access request which they believe might be for an improper purpose.

The key points from John’s article are:

  • ‘ Proper purpose’ applies equally to members and non-shareholders seeking access to the register.
  • The court has wide powers to interpret the term but the onus is on the company to demonstrate to the court that it should be satisfied on a balance of probabilities that the request is for an improper purpose.
  • If a member, the request should relate to the shareholder’s interest and/or the exercise of shareholder rights.
  • If access by any party is sought for a combination of proper and improper purposes, the former should be allowed, subject to appropriate safeguards.
  • It should be remembered that speed of response is paramount as the company has only five days from receipt of the request to go to court.

In Equiniti’s experience, in the seven years since the new provisions came into force, companies are very unlikely to face an access request which is for an improper purpose; there are very few we are aware of which have resulted in push-back by the company.

Equiniti has clear procedures to escalate internally or externally any request it receives immediately. In the first instance, companies may seek to get the request withdrawn voluntarily while they enter discussions with the person making the request. The difficulty is that, if that approach fails, the clock starts ticking the moment the request is received and the company has a maximum of five working days to either comply with the request or apply to the court, so it has very limited time to assess the situation and respond accordingly.

For John’s full article including details of the case, please click on the following link.

If you would like more information on this topic please contact your relationship manager.

Ezine issue: July 2014