Inspecting the register of members
Every company is required to keep certain records and documents. This includes things like registers of the company’s members, directors and PSCs (people with significant control), as well as copies of directors’ service contracts, charges and board minutes. Many of these records must be made available for public inspection – this transparency being part of the quid pro quo for the company’s limited liability status which protects its participators.
However, to protect the individuals whose personal details may be contained in those records, and to prevent the inspection right from being abused, a request to inspect certain records (principally, the register of members and the PSC register) must state certain information, including its intended purpose and details of anyone with whom the disclosed information will be shared. If the request does not comply with these requirements, the company may refuse inspection of the register. Since this procedure was introduced in October 2007 there have been a number of cases which have helped to shed light on when a company may lawfully refuse to comply with an inspection request. The latest is Sir Henry Royce Memorial Foundation v Hardy  EWHC 714.
In this case, the relevant company operated a charitable foundation aimed principally at preserving the legacy of Sir Henry Royce, the co-founder of Rolls-Royce. The company was run by a board of directors, elected by its members. The directors were all unpaid volunteers. The company had a ‘sister company’, the Rolls-Royce Enthusiasts Club (the Club) although in fact the two companies did not have a common membership. The board of each company could nominate a director of the other but, at the time of the trial in this case, there were no common directors.
Mr Hardy was a member of company. He was also the finance director of the Club between December 2019 and April 2020. During that time he claimed to have discovered serious wrongdoing in the affairs of the Club which included allegations of fraud, theft and false accounting against some of the directors of the Club. Those individuals were also directors of the company.
On 10 February 2020 Mr Hardy wrote to the company asking to inspect its register of members. In his letter, Mr Hardy stated that the purpose of that request was to convene a special meeting of the company’s members to explain the lack of an AGM, to distribute the annual accounts and to remove certain directors from office on the grounds that their alleged wrongdoing as directors of the Club had caused irreparable harm to the company.
But that initial request did not state whether the information revealed by the inspection would be disclosed to any other person. On 13 February 2020 the company informed Mr Hardy by email that it was refusing him access to the register of members and that it would be applying to the court for an order that it need not comply with the request. Mr Hardy responded 15 minutes later stating that he had noticed that he had “inadvertently omitted” to state in his notice that he would not be making the information available to anyone else and that he had no intention of doing so.
The court held that Mr Hardy’s request to inspect the register of members was not a valid request and so made a no access order.
By omitting to state in his request whether the information would be disclosed to anyone else (and, if so, to whom and for what purpose), Mr Hardy had failed to comply with the relevant statutory requirements. The court accepted that the phrase “I have no intention of making the information available to any other person” was sufficient to comply with the requirements and it was not necessary for the requesting party to say explicitly “the information will not be disclosed to any other person”. However, the court found that the omission of that information made the original request from Mr Hardy invalid: it did not contain all the information required by the statutory provisions.
The judge then went on to consider whether the invalid request of 10 February could be corrected by the additional information provided in Mr Hardy’s email of 13 February 2020. He held that, given the short period (five days) within which a company must comply with a valid request or challenge it via the courts, the company needs to know where it stands when the request is made. If an error was discovered, a new (compliant) request could be made. But Mr Hardy had not done this and had instead sought to correct his initial request. As a result, the request made on 10 February was invalid and the company did not have to comply with it.
Notwithstanding that conclusion, the court went on to consider the purpose of Mr Hardy’s request and, in particular, whether seeking to remove directors from office due to their conduct in a different capacity (in this case, their conduct as directors of a different entity – the Club) could be a proper purpose. The judge said it was possible for this to be a proper purpose given that a person’s general conduct can reflect on particular institutions with which that person is connected. However, to do that it was necessary to go beyond simply making an allegation against the director in their capacity as a director of another company which, on its face, does not directly concern the activities of the subject company. In this case, Mr Hardy had not done this: there was nothing alleged against the directors in their capacity as directors of the company which would justify the request for details of the members to call a meeting for the purpose of removing them from office as directors of that company. Accordingly, in this case, that was not a proper purpose.
What does this mean in practice?
The case is a warning to those seeking to exercise their inspection right that failing to comply strictly with the statutory requirements will result in their request being refused. Given that the company is pushed into requesting a ‘no inspection’ order from the court in such a short time period, this failure could prove costly if the person making the invalid request is then ordered to pay the costs of the company’s successful court application.