Burry & Knight Ltd, Re [2014] EWCA Civ 604

Dr Knight, a minority shareholder in family companies, sought access to share registers to contact fellow shareholders about historic allegations of director misconduct. The Court of Appeal upheld the Registrar's no-access order, finding his purpose improper as the stale allegations could not benefit shareholders. This case clarified the 'proper purpose' test under s.117 Companies Act 2006.

Facts

Dr Martin Knight held shares in two family companies, Burry & Knight Ltd and Hoburne. He had historic complaints about director remuneration and benefits dating from the 1980s and 1990s. In 2012, Dr Knight requested copies of the share registers under section 116 of the Companies Act 2006, stating his purpose was to study shareholdings, write to shareholders about past director conduct, and raise concerns about share valuation methods.

The companies applied under section 117(3) for a no-access order. The Registrar found Dr Knight had mixed purposes: pursuing stale allegations (improper) and raising share valuation concerns (proper). He made a conditional order permitting the companies to circulate a letter from Dr Knight about share valuation whilst refusing direct access to the registers.

Issues

Principal Issue

Whether the court should make a no-access order under section 117(3) of the Companies Act 2006, and what constitutes a ‘proper purpose’ for accessing a company’s register of members.

Secondary Issues

Whether a Pelling-type order (conditional access on terms) remained appropriate under the new statutory regime, and whether indemnity costs were justified.

Judgment

The Court of Appeal (Lady Justice Arden, Lord Justice Briggs, Lord Justice Christopher Clarke) dismissed the appeal against the no-access order but allowed the appeal on indemnity costs.

Lady Justice Arden held that a proper purpose must generally relate to the member’s interest in that capacity and the exercise of shareholder rights. She stated:

“I agree with the Registrar that the way the statutory provisions are framed reflects a strong presumption in favour of shareholder democracy and a policy of upholding principles of corporate transparency and good corporate governance.”

On the question of improper purpose, Arden LJ concluded:

“Dr Knight’s purpose of wanting to study shareholdings of the other members adds nothing since that purpose can only sensibly be for the purpose of obtaining support for some proposal.”

The allegations were found to be “very stale” and could confer no benefit on fellow shareholders. Lord Justice Briggs observed that Dr Knight had “become sadly obsessed with what was at heart a family dispute, and had altogether lost sight of the interests of the companies or their shareholders.”

The court confirmed that Pelling-type orders remain available under section 117(3), enabling the court to permit communication for proper purposes whilst restricting improper ones.

Implications

This case provides the first Court of Appeal guidance on section 117(3) of the Companies Act 2006. Key principles established include:

• The onus lies on the company to demonstrate the request is for an improper purpose on the balance of probabilities
• There is a strong presumption favouring shareholder democracy and corporate transparency
• Where there are mixed purposes, the court may make conditional orders permitting communication for proper purposes only
• Applications should be dealt with summarily where possible
• Stale allegations with no utility to shareholders do not constitute a proper purpose

The decision emphasises that while shareholder access to registers serves important corporate governance functions, this right is not absolute and may be restricted where the true purpose would not benefit shareholders in their capacity as members.

Verdict: Appeal against the no-access order dismissed; appeal against indemnity costs allowed. The conditional order permitting the companies to circulate Dr Knight’s letter about share valuation whilst refusing direct register access was upheld, but costs were reduced from indemnity basis to standard basis.

Source: Burry & Knight Ltd, Re [2014] EWCA Civ 604