COMPANY LAW - 22.09.2020

Dealing with a tricky shareholder request

What if a shareholder tries to call a meeting to remove the board? The directors know that he’s a troublemaker, but how should you respond to such a request?

A reasonable request?

A building management company limited by guarantee received a request from B, a leaseholder and member, to inspect the register of members so he could requisition a general meeting at which he could propose resolutions to remove the board and managing agent.

Note. Although this case concerned a company limited by guarantee, the same provisions apply to companies limited by shares, so “member” can be read as “shareholder”.

The company’s response

When a company receives such a request, it has just five working days to grant it or apply to court for permission to refuse. Here, the company applied to court, contending that B had a history of being disruptive and intended to interfere with the building’s management. However, the court held that a member seeking to communicate with other members to challenge, in good faith, the way in which the company was being run should normally be regarded as having a proper purpose. Complaints about the managing agent and the board were legitimate matters to raise at a general meeting.

Members’ rights

The right to inspect the register is key to the effective exercise of many other rights, which rely on members acting together. Members should normally be permitted to inspect the register for a reason connected to their rights, even if the board genuinely disagrees with their proposed action.

Tip. If the applicant then calls a general meeting, the board will be able to make its views known, allowing the members to make an informed decision.

When is a request “improper”?

Inspection is made subject to the “proper purpose” test in order to balance the need to provide access to the register with the protection of members’ data. Any request for access must specify the applicant’s purposes, which should be judged on a case-by-case basis.

Warning signs. Alarm bells should ring if the information will be used for marketing purposes or to make money, e.g. by selling the information on. Those with genuine enquiries, e.g. tracing a lost shareholding for probate purposes, often have specific requests, such as needing to search for particular names.

Tip. Access only needs to be granted to the extent of the request. Therefore, make sure that whoever supervises the applicant knows not to grant any additional “on-the-spot” requests.

Protection for members. The balancing act between transparency and data protection is always tricky. Members have some protection in that they don’t need to have their residential addresses on the register, and any person who accesses the register must comply with data protection law. Further, anybody who makes a false request commits a criminal offence.

Tip. You can charge for any copies provided: £1 for each of the first five entries and £30 for up to the next 95, plus reasonable delivery costs. You can also charge £3.50 per hour for non-members to inspect in person (members can do this for free).

If the board receives a request to inspect the register of members/shareholders, it must act within five days. The key question is whether the person has a proper purpose, such as the exercise of their members’ rights. If not, you’ll have to apply to court.

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