Validity Of Written Resolutions Based On The Register Of Members

The unsurprisingly unspectacular subject of the register of members of a company and its role in passing written resolutions for winding up does not normally take centre stage in our courts.

However, hold that thought because it occupied the craniums of three judges in the Court of Appeal recently and culminated in Bland & Anor v Keegan [2024] EWCA Civ 934.

Two Hours In The Court Of Appeal

Two eminent insolvency barristers took to the floor of the Court of Appeal in this adversarial contest, deploying their advocacy skills to seek to persuade the judges.

Perhaps Clapham man would not have envisaged such a subject would lead to a tsunami of points but for more than 2 hours the debate developed over whether or not the register of members was prima facie or conclusive evidence of who the members of a company are at a particular point in time.

Those who find this subject sufficiently gripping and wish to grapple with the detailed arguments themselves can with alacrity view the contest between Mr Fennell for the appellant and M Doyle KC for the liquidators here: https://www.youtube.com/watch?v=O9zJoVcTaFs.

In a unanimous decision, the judgment handed down by Lord Justice Snowden dismissed the appeal. It puts a stamp on the position that a company resolution rooted in voting and passed by members recorded in the register of members stands and is enforceable unless or until a court applies some retrospective action of variation or rectification.

Stripping down to the brass tacks the supremacy of the register of members seems to be now beyond much doubt:

… unless and until an order for rectification was made, the identity of the members of the Company for the purposes of determining the validity of the Written Resolution was to be determined by the entries in the Company’s register of members at the relevant time.

The remedy when a register of members is considered to be wrong is it can be subject to an order for retrospective rectification following an application to the court under Section 125 of the Companies Act 2006.

How Is It The Register Of Members Is Conclusive Evidence Of A Company’s Members?

The starting point is that according to Section 127 of the Companies Act 2006 the register of members is no trivial company record. Indeed this is to be expected as it is a register of the rather important matter of who owns a company, being:

…prima facie evidence of any matters which are by this Act directed or authorised to be inserted in it…

The matter considered whether the liquidators of JDK Construction Limited had been validly appointed following a written resolution for the Company to be wound up by being placed into creditors voluntary liquidation.

To cut the story a bit shorter, the issue of the register of members was contentious because, on 14 November 2022, the appellant issued a claim seeking a declaration that a stock transfer form was a forgery and void resulting in the appellant’s name being expunged from the register of members. The importance of this event was that another party then passed a written resolution for the company to be wound up.

At a later date, the liquidators sought a declaration on the validity of their appointment.

Register Of Members Impact On The Validity Of the Liquidators’ Appointment

At a later date, the liquidators sought a declaration on the validity of their appointment.

It appears a key submission by Mr Fennell for the appellant was that the register of members was prima facie, not conclusive evidence of the company’s members.

The submission of Mr Fennell which seems difficult to find fault with was summarised as follows:

Mr. Fennell submitted that this outcome was in accordance with policy and good sense. He contended that the decision of the Judge opened the door to a fraudster obtaining control of a company by the simple expedient of forging a stock transfer form or making unauthorised alterations to the register of members, and thereafter using his status as a member to pass valid resolutions, e.g. putting the company into liquidation or assuming control of the board and misappropriating its assets, to the detriment of the true owners of the company and others interested in it, such as employees and creditors. He suggested that it would be wrong for mere entries on the register of members to have such far-reaching consequences; and that in any competition between two innocent parties, the loss should fall on those whose status was acquired through use of the void document.

Mr Doyle KC’s equally impressive submission and troublesome to disagree with was:

Mr. Doyle KC suggested that any other regime would be unworkable because it would mean that a company, its directors or third parties (such as an insolvency office-holder) would be unable to rely upon the register of members as an accurate statement of the membership when, for example, convening general meetings of the company or acting on the basis of resolutions passed at such meetings. He submitted that if a person contends that the register of members of a company is inaccurate, they have a remedy by way of an order for rectification of the register pursuant to section 125 of the Companies Act, but unless and until such an order is made, the register is conclusive.

Court Of Appeal On The Register Of Members

The Court of Appeal had this to say:

Apart from relying upon Ruben and other cases that have followed it in similar circumstances such as South London Greyhound Racecourses v Wake [1931] Ch 496, Mr. Fennell did not cite any authority to us in support of the proposition that a person whose name is wrongly removed from the register of members as a consequence of a forged transfer still retains the status of a member for voting purposes.

In my judgment, in the absence of such authority, the general principle explained by Lord Collins in Enviroco at [37] should apply for the purposes of determining the validity of members’ resolutions, even in a case where a member’s name has been wrongly removed from the register as a result of forgery or fraud. The law does not simply disregard the entries on the register. Instead, the entries on the register of members are presumptively valid and the members of a company are taken to be those shown on the register “unless and until the register is rectified“.

A company cannot simply alter its register of members to remove the name of a registered holder of shares without a court order: re Derham and Allen [1946] Ch 31 at 36. Accordingly, as occurred in the instant case, it is necessary for a person who contends that their name has wrongly been taken off the register to apply to the court for an order that the register be rectified, putting them back onto the register in place of the person whose name wrongly appears on the register. The application to the court can be made under section 125 of the Companies Act (which provides a summary jurisdiction for simple cases) or in an ordinary CPR Part 7 claim (for other cases): see Nilon v Royal Westminster Investments SA [2015] UKPC 2 at [37].

…

As I see it, the power of the court to make consequential orders dealing with events that have occurred whilst the register was not in the correct state (Bahia), coupled with the power to order rectification with retrospective effect (Sussex Brick), provide the answer to Mr. Fennell’s contention that to treat the entries on the register as determinative of the membership of a company for voting purposes would open the door to fraudsters and forgers. In short, the court has the power when making an order for rectification of the register of members, so far as legally possible, to undo the effects of such misconduct, to order compensation to be paid, or to determine how losses should be fairly allocated between innocent parties.

…

… it seems to me that unless and until an order for rectification was made, the identity of the members of the Company for the purposes of determining the validity of the Written Resolution was to be determined by the entries in the Company’s register of members at the relevant time.