Written by Barri Mendelsohn KWM London Office

Houldsworth Village Management Co Ltd v Barton [2019] EWHC 3590 (Ch)

The UK High Court recently considered the application of section 117 of the Companies Act 2006 (“s.117”), which sets out the parameters for responding to a request by a member of a company to inspect the company’s register of members and the ability of a Company to refuse the request. The Court in this case dismissed an application to refuse the provision of a company’s register of members on the grounds that the company had failed to prove that the request had not been made for a “proper purpose”.

Consequently, UK companies need to take care if they receive a s.117 request, the UK Courts will primarily consider dismissing the request if there is substantial evidence to refute such a request and show grounds of improper purpose.

The Facts

 Mr. Barton (the defendant) was a registered leaseholder in an apartment complex managed by Houldsworth Village Management Company (“HVMC”) (the claimant) and, by virtue of his lease agreement, also a shareholder of HVMC. As part of a long running dispute, Mr. Barton submitted a request for a copy of HVMC’s register of members pursuant to section 116 of the Companies Act 2006. In his request, Mr. B expressed his purpose for requesting the register as “seeking a general meeting of members and proposing resolutions to remove and replace the existing directors and the managing agent”. S.117 gives UK companies five working days to respond to any such requests made by shareholders or if provision of such registers is opposed, UK companies must seek a declaration from the Court that the request is not for a proper purpose and that it should therefore be refused.

This s. 116 request was Mr. Barton’s second such request, having been unsuccessful in obtaining the register of members of another management company in a prior case. In that case, the purpose for his request was to seek the members’ views “on a number of matters regarding the management of Pandongate House”. Mr. Barton also failed to provide evidence to counter arguments made by the management company, which played a large part in the Court dismissing his request – a mistake he appeared not to repeat.

In this case, HVMC argued that whilst removing directors could be considered a proper purpose, removal of the managing agent could not, and sought instead to prove that the true purpose of Mr. Barton’s request was vexatious in nature and risked hampering the efficient running of the company.

The Judgment

 The High Court, finding against HVMC, dismissed its argument that seeking to remove the managing agent was not a proper purpose.

The judgment highlighted the objects of HVMC as stated in its memorandum of association, which included to “acquire, hold and manage the property”. The directors of HVMC had chosen to delegate their management functions to a managing agent (by way of resolution at a general meeting) and so the High Court held that it was entirely reasonable for Mr. Barton to seek support to convene a general meeting to propose the removal of the managing agent.

Mr. Barton also committed to provide an undertaking to the court supporting his request which was held to strengthen the conclusion that the purpose for his request was indeed a genuine one. The High Court did not take Mr. Barton’s previous “regrettable” behaviour as a vexatious litigant into account, and instead held that HVMC had failed to meet its burden of proof on the facts of this particular case.

This case has been referred to the Court of Appeal and will be heard later this year.

Key Takeaways

 Whilst members have various rights under a company’s articles such as voting on resolutions, requesting meetings etc., the day-to-day management of the company falls to the directors, not shareholders. However, this case highlights how that distinction is not always as neat as companies might like, and shareholders have tools at their disposal to influence the management of a company, provided a proper purpose is shown.

In light of this case it is important that companies study both the content of a request for their register of members and their memorandum of association/articles carefully. The expression “proper purpose” in s.117 is given its ordinary and natural meaning, with the High Court stating that first the purpose should be identified before one considers whether the purpose is proper.

Strong evidence (including correspondence and witness statements) may also be needed to support the case made by any company looking to refuse a request under s.117, as this case proves, the burden for proving that a member did not have a proper purpose in making the request lies with the company.