Introduction

The case of Houldsworth Village Management Company Ltd v. Barton ([2020] EWCA Civ 980) adjudicated by the England and Wales Court of Appeal (Civil Division) on July 29, 2020, addresses the scope of members' rights to inspect the current register of members under section 116 of the Companies Act 2006 ("the Act"). The appellant, Houldsworth Village Management Company Ltd ("Houldsworth"), serves as the management company for Victoria Mill, an apartment complex in Stockport. The respondent, Mr. Barton, a leaseholder of Apartment 93 within Victoria Mill, sought to inspect the register with the intention of convening a general meeting to remove current directors and the managing agent. Houldsworth contested the request, leading to a judicial examination of the boundaries between corporate governance and leaseholder interests.

Summary of the Judgment

Mr. Barton submitted a formal request under section 116 of the Companies Act 2006 to inspect Houldsworth's register of members. His stated purpose was to mobilize fellow members to convene a general meeting aimed at removing existing directors and the managing agent overseeing Victoria Mill. Houldsworth contended that Mr. Barton's request was not for a "proper purpose" as defined under section 117 of the Act and sought a court order to deny the request.

The High Court initially directed Houldsworth to comply with the inspection request but allowed for an appeal. Upon reaching the Court of Appeal, the judges evaluated whether Mr. Barton's intentions aligned with the statutory requirements for a proper purpose. The appellant argued that Mr. Barton's motives were more aligned with interfering with the management of the building—falling under leaseholder interests—rather than corporate governance.

The Court of Appeal ultimately dismissed Houldsworth's appeal, affirming that Mr. Barton's purpose was indeed proper within the context of corporate governance. The judges highlighted that the management of Victoria Mill, as delineated in Houldsworth's memorandum of association, inherently links the roles of managing agents with the company's governance. Therefore, Mr. Barton's request to influence corporate governance through a general meeting was lawful and proper under section 116.

Analysis

Precedents Cited

The Court of Appeal referenced several pivotal cases to elucidate the concept of a "proper purpose" under section 117 of the Companies Act 2006:

• In re Burry & Knight Ltd [2014] EWCA Civ 604; – This case emphasized that the purpose should align with a member's interest in corporate governance rather than personal interests.
• Burberry Group Plc v Fox-Davies [2017] EWCA Civ 1129; – Reinforced that the purpose test applies uniformly to all requests, irrespective of the requester's membership status.
• Morshead Mansions Ltd v Di Marco [2008] EWCA Civ 1371; – Highlighted the distinction between leaseholder obligations and company member rights.
• Pandongate House Management Co Ltd v Barton [2019] L & TR 23; – Although deemed not directly applicable, it provided insights into the evaluation of a proper purpose in similar contexts.

These precedents collectively shaped the Court's understanding that while leasehold interests and corporate governance may intersect, the determination of a proper purpose hinges on the request's alignment with the company's governance rather than individual leaseholder interests.

Legal Reasoning

The Court of Appeal meticulously dissected the statutory provisions of sections 116 and 117 of the Companies Act 2006. Section 116 grants members the right to inspect the register of members, while section 117 outlines the company's obligations upon receiving such a request. The crux of the matter revolved around whether Mr. Barton's stated purpose—to convene a general meeting for removing directors and the managing agent—fell within the ambit of corporate governance.

The judges reaffirmed that Houldsworth's management responsibilities are intrinsically tied to its corporate structure and governance. Therefore, actions aimed at altering the company's directors or managing agents directly impact corporate governance. The Court rejected Houldsworth's argument that Mr. Barton's motives were solely leaseholder-centric, emphasizing that the management of the property falls under the company's governance, and thus, any corporate action affecting management agents is a matter of corporate governance.

Additionally, the judges critiqued the appellant's reliance on the Pandongate decision, asserting that it misapplied the "proper purpose" test by unduly narrowing the scope based on the capacity in which the request was made. The Court of Appeal maintained that the "proper purpose" should be assessed based on the request's nature and its alignment with corporate governance, irrespective of the requester's multiple capacities.

Impact

The judgment in Houldsworth v. Barton has significant implications for corporate governance and members' rights within management companies. It clarifies that:

• Members can exercise their rights to inspect the register of members for purposes that directly influence corporate governance, even if they hold overlapping roles (e.g., as leaseholders).
• Courts will scrutinize the purpose of register inspection requests within the framework of corporate governance, ensuring that they align with the company's governance objectives.
• Precedents that attempt to restrict the "proper purpose" test based on the capacity of the requester are likely to be re-evaluated, promoting a more holistic assessment of such requests.

Consequently, this decision empowers members to actively participate in the governance of their management companies, facilitating greater oversight and accountability of directors and managing agents.

Complex Concepts Simplified

Section 116 of the Companies Act 2006

This section grants members of a company the right to:

• Inspect the current register of members without charge.
• Obtain copies of the register upon payment of a prescribed fee.
• Outline the purpose for which the register information is sought.

Section 117 of the Companies Act 2006

Upon receiving a request under section 116, a company must within five working days:

• Comply with the request.
• Or apply to the court to deny the request if it believes the purpose is not proper.

If the court deems the purpose improper, it can order non-compliance and may require the requester to bear the company's costs.

Proper Purpose

A "proper purpose" refers to the legitimate and lawful reasons for requesting access to the company's register of members. It is assessed objectively based on the context and the alignment with corporate governance principles. In this case, seeking to remove directors and managing agents was deemed a proper purpose as it directly relates to overseeing and improving corporate governance.

Corporate Governance

This encompasses the systems, principles, and processes by which a company is directed and controlled. It involves balancing the interests of a company's stakeholders, including shareholders, management, customers, suppliers, financiers, government, and the community. Effective corporate governance ensures accountability, fairness, and transparency in a company's relationship with its stakeholders.

Conclusion

The Court of Appeal's decision in Houldsworth Village Management Company Ltd v. Barton reinforces the paramount importance of corporate governance within management companies. By affirming that members have the right to inspect the register for purposes that directly impact the company's governance, the judgment empowers members to hold directors and managing agents accountable. It delineates the boundaries between corporate roles and leaseholder interests, ensuring that governance-related actions are not impeded by overlapping capacities. This case sets a precedent that balances the rights of members with the operational frameworks of management companies, fostering an environment of transparency and responsible governance.

Moving forward, management companies must be cognizant of the dual capacities in which members may act and recognize that requests for information serve as vital tools for maintaining effective oversight and accountability within corporate structures.