This week’s Legal Update looks at the case of Houldsworth Village Management Company Limited -v- Barton [2020] EWCA Civ 980, which is not strictly concerned with a landlord and tenant issue but a company law issue in the context of a RMC. Although at KDL Law we are not expert in company law issues (our expertise and specialism being in residential landlord and tenant matters), we are nonetheless reporting on this case given the relevance and significance of this case to a wide range of our client base of managing agents and RMCs dealing with the management and administration of companies.

Background

Mr Barton owned a long lease of a flat in a building known as Victoria Mill in Stockport, a complex made up of 180 residential flats held on tri-partite long leases. Houldsworth was the management company named in the leases and, as is common, was owned by the leaseholders in Victoria Mill, including Mr Barton.

Mr Barton made a request under Section 116 of the Companies Act 2006 (CA) to Houldsworth, to inspect the register of members. He said in that request that the reason that he wished to inspect the register was so that he could seek a general meeting of the members, with a view to removing the current board of directors and the current managing agents.

Houldsworth applied to the High Court for a direction that it did not have to comply with Mr Barton’s request, as the grounds on which it was made were not ‘proper’ ones.

The law

Section 116 of the CA enables any member of the company without charge to inspect the register of members or to be provided with a copy of the register (subject to payment of a fee). The purpose for that request must be specified.

Under Section 117 of the CA, the company must comply with such a request within 5 working days or, within that time, apply to Court on the basis that the request is not made for a ‘proper purpose’. If the Court is satisfied that the request was not made for a proper purpose, it may direct that the company is not to comply with it.

A refusal or failure to permit inspection or to provide a copy of the register as requested under Section 116, otherwise than by an order under Section 117, is an offence on the part of the company and every officer in default and subject to a fine (Section 118).

There are two further offences in Section 119 of the CA designed to protect the company against unscrupulous requests for this information. Firstly, it is an offence for a person to knowingly or recklessly make a statement which is misleading, false or deceptive in the Section 116 request. Secondly, it is an offence for a person in possession of information obtained via a Section 116 request to do anything that results in the information being disclosed to another person, or to fail to do anything with the result that the information is disclosed to another person, knowing or having reason to suspect that person may use the information for a purpose that is not a proper purpose.

Houldsworth’s position

Houldsworth position was that Mr Barton’s Section 116 request was not made for a proper propose. Although it was not disputed that the intention to call a meeting to remove the directors was not, in itself, an improper purpose, Houldsworth considered that the intention to remove the managing agents was an improper purpose.

Houldsworth sought to distinguish the rights a member of a company has as a member of the company, and the rights of leaseholders against their landlord. Houldsworth took the view that, to the extent that Mr Barton was dissatisfied with its compliance with its roles and responsibilities under the leases (through its appointed managing agents), those were not corporate affairs that Section 116 was concerned with. Houldsworth considered that the true purpose behind Mr Barton’s request was to exercise greater control over Victoria Mill in matters arising under the leases, and to further his own interests and cause disruption at Victoria Mill.

The Court’s decision

Although the Court accepted that there was a clear distinction to be drawn between rights of leaseholders in that capacity and rights of a member of a company in that different capacity, the Court of Appeal was not convinced that such a distinction applied in the present case. The Court decided that, in the context of a lessee-owned company which existed to provide services under long leases, it was artificial to draw a distinction between the governance of the company and the management functions under the leases.

Therefore, Mr Barton’s Section 116 request, so that he could call a general meeting to motion to replace the board and the managing agents, was made for a proper purpose and Houldsworth had to disclose the register of members to him.

Comment

Managing agents and RMCs (indeed, any companies) should be careful to dismiss out of hand any requests for the register of members. Often requests for such details will be refused on the grounds that such details are protected from disclosure under the GDPR (given that they undoubtedly amount to personal data). However consideration needs to be given to what obligations the company has under the CA or otherwise, to provide the information requested, as well as the consequences of a failure to comply. Note in the event of a failure to comply with Section 116 or to make an application under Section 117, an offence is committed not only by the company, but also by every officer (director/company secretary) in default.

It goes without saying that applications under Section 117 will be costly and time consuming, therefore genuine concerns that the request is not made for a proper purpose must exist, to justify the expense of an application. Specialist advice should be taken in any given case before any Section 116 request is ignored or refused, or any Section 117 application is considered.

Whilst KDL Law are unable to provide such advice, we are happy to make recommendations and referrals to suitably qualified lawyers who can provide advice on such issues, where needed.

Disclaimer

This legal update is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of KDL Law or by KDL Law as a whole.

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