The Importance of an Accurate Register of Members in Company Law: Insights from a Recent Court of Appeal Decision

A recent Court of Appeal decision underscores the crucial role that a company's register of members plays in determining its membership. According to this ruling, only those listed on the register are eligible to vote, unless and until the register is formally rectified.

Common Issues in M&A Due Diligence

One of the more frequent challenges encountered in M&A deals is undertaking due diligence on a target company's register of members. This issue is particularly prevalent in fast-growing companies, where the register may be outdated, inconsistent with the records at Companies House, or, in some cases, missing altogether.

Case Overview: Bland and Mayo v Keegan

The recent Court of Appeal case Bland and Mayo v Keegan highlights the significance of the register of members, and cautions against relying solely on Companies House records. The Court ruled that the entries on a company's register of members are presumptively valid. As such, the individuals listed on this register are considered the company's members, even in situations where there may be allegations of fraud. This presumption remains unless and until the register is corrected through proper legal channels.

Case Background

The facts of the case were unique, involving a family dispute over the ownership and control of a company.

Jeanette and Julie Keegan (who was married to Jeanette's son, Darren) were the two shareholders and directors of JFK Construction Ltd, each holding 50 ordinary shares. Following a breakdown in the relationship between Jeanette and Darren, Julie executed a stock transfer form, attempting to transfer Jeanette's 50 shares to herself, signing the form as "J. Keegan." The share transfer and Jeanette's removal as a director were subsequently filed at Companies House.

Later, as divorce proceedings between Darren and Julie began, Julie signed a written resolution as the sole member of JFK Construction Ltd, deciding to wind up the company and appoint Bland and Mayo as liquidators. Jeanette disputed the validity of the share transfer and the subsequent resolution.

The liquidators sought a declaration confirming their appointment was valid. Jeanette, in turn, filed a claim alleging the stock transfer form was forged and requested that the register of members be rectified to reflect her ownership of the shares. The court upheld the validity of the liquidators' appointment, leading Jeanette to appeal.

Court of Appeal Judgment

The Court of Appeal dismissed Jeanette's appeal, affirming the validity of the liquidators' appointment.

The Court emphasised the definition of a "member" under Section 112 of the Companies Act 2006. A person becomes a member of a company either by subscribing to its memorandum or by agreeing to become a member and being entered into the register of members.

This definition highlights a core principle of UK company law: unless there is an express provision stating otherwise, the individuals listed in the register of members are the company's members. This remains true even if a member's name has been wrongfully removed due to forgery or fraud.

If a person believes their name has been wrongfully removed from the register, they must seek a court order for rectification to restore their name to the register.

The Court noted that the register of members is presumed to be accurate and valid. As such, the identity of the members, for the purposes of determining the validity of written resolutions, is based on the entries in the register at the time the resolution was made. In this case, Julie was the only member listed in the register at the relevant time, and therefore, the resolutions she passed were valid, and the liquidators were properly appointed.

Key Takeaways

This case serves as a critical reminder of the importance of maintaining an accurate and up-to-date register of members. This document is essential in establishing legal ownership of shares and determining voting rights within a company.

For companies, particularly those preparing for a sale or other corporate transactions and/or restructures, it is crucial to ensure that the register of members is correct and up-to-date. Sole reliance on filings at Companies House is insufficient; the register of members must reflect the true ownership and voting rights within the company.

Maintaining an accurate register is not just a matter of good practice; it is a legal necessity that can have significant implications in disputes and corporate transactions.

Our team of experienced corporate lawyers are here to provide the expertise and support you need. Please do not hesitate to get in touch with our Corporate team by telephone on 0207 052 3545 or by email info@kaurmaxwell.com