CPD NORTH:
COMPANY LAW UPDATE
7th OCTOBER 2014
DAVID CABRELLI
Solicitor and Senior Lecturer in Commercial Law
School of Law
University of Edinburgh
1
CPD NORTH: COMPANY LAW UPDATE
Introduction
In this presentation, I propose to analyse recent company law cases that are of a
significant nature, and to ascertain how the judiciary have interpreted some of the
headline provisions of the Companies Act 2006 (“CA” or the “2006 Act”) since the
summer of 2013. In particular, the principal focus will be on the following:



The law of directors’ duties;
Developments in the law relating to the statutory derivative action (sections
261 to 269 of the 2006 Act) and the unfair prejudice remedy (section 994 of
the 2006 Act); and
Recent developments in the case law.
Directors’ Duties
General
“170
Scope and nature of general duties
(1)
The general duties specified in sections 171 to 177 are owed by a director of a
company to the company…
(3)
The general duties are based on certain common law rules and equitable
principles as they apply in relation to directors and have effect in place of
those rules and principles as regards the duties owed to a company by a
director.
(4)
The general duties shall be interpreted and applied in the same way as
common law rules or equitable principles, and regard shall be had to the
corresponding common law rules and equitable principles in interpreting and
applying the general duties.
(5)
The general duties apply to shadow directors where, and to the extent that, the
corresponding common law rules or equitable principles so apply.”

Relationship between the statutory duties and the common law:
Coppage v Safety Net Security Ltd. [2013] EWCA Civ 1176 at para. [28] per Sir
Bernard Rix, who expressed an equivocal view on the relationship between the
statutory code and the underlying common law:
“These new provisions both replace and build on common law rules and
equitable principles. What is not clear, however, is how the new statutory
provisions and the existing common law principles are intended to bed down
together.”
2

Who owes the duties? The status of de facto and shadow directorships:
Vivendi SA Centenary Holdings v Richards [2013] EWHC 3006 (Ch) at paras. [142][143] per Newey J
Elsworth Ethanol Company Ltd. v Hartley [2014] EWHC 99 (IPEC) – who are de
facto directors?
Smithton Ltd. v Naggar [2014] EWCA Civ 939; [2014] BCC 482 – who are de facto
directors and shadow directors?

Parties connected to directors – connected persons and whether transactions
between a director and his ‘mistress’ may be set aside:
Sargespace Ltd. v Eustace [2013] EWHC 2944 (QB)
Proper Purposes and Compliance with the Constitution
“171
Duty to act within powers
A director of a company must–

(a)
act in accordance with the company's constitution, and
(b)
only exercise powers for the purposes for which they are conferred.”
Exercise of power in the articles to restrict the voting rights of certain
shareholders in advance of company’s AGM:
JKX Oil & Gas Plc v Eclairs Group Ltd. [2014] EWCA 640; [2014] 2 BCLC 164

Liability for the misapplication of a company’s property by exercising a power
otherwise than that for which it was conferred cannot arise unless the director
knows that it is an improper purpose or of the fact which make the purpose
improper:
Madoff Securities International v Raven [2013] EWHC 3147 (Comm)
Duty to Promote Success
“172
Duty to promote the success of the company
(1)
A director of a company must act in the way he considers, in good faith,
would be most likely to promote the success of the company for the benefit of
its members as a whole, and in doing so have regard (amongst other matters)
to–
(a)
(b)
the likely consequences of any decision in the long term,
the interests of the company's employees,
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(c)
(d)
(e)
(f)
the need to foster the company's business relationships with suppliers,
customers and others,
the impact of the company's operations on the community and the
environment,
the desirability of the company maintaining a reputation for high
standards of business conduct, and
the need to act fairly as between members of the company.
(2)
Where or to the extent that the purposes of the company consist of or include
purposes other than the benefit of its members, subsection (1) has effect as if
the reference to promoting the success of the company for the benefit of its
members were to achieving those purposes.
(3)
The duty imposed by this section has effect subject to any enactment or rule of
law requiring directors, in certain circumstances, to consider or act in the
interests of creditors of the company.”

Does section 172 of the CA impose a duty on a director to take decisions
which minimise the company’s tax liability? No – see opinion for the firm of
Farrer & Co. sent to the CEO of every FTSE100 company:
http://www.taxjustice.net/cms/upload/pdf/Farrer_and_Co_Opinion_on_Fiduci
ary_Duties_and_Tax_Avoidance.pdf

Does section 172 of the CA translate into a duty on the directors to ensure that
the company has in place insurance against liability to its employees for
personal injury sustained by them in the course of their employment? No:
Campbell v Peter Gordon Joiners Ltd. [2013] CSOH 181; [2014] SLT 178, 183 per
Lord Glennie

Nature of the test in section 172:
Madoff Securities International v Raven [2013] EWHC 3147 (Comm)

Where a director has caused the company to make certain payments, despite
knowing that it was cash flow and balance sheet insolvent under section
123(1)(e) and (2) of the Insolvency Act 1986, he was in breach of section 172.
It was recognised that the subjective duty is subject to qualification in three
circumstances:
Hellard v Carvalho [2013] EWHC 2876 (Ch)
Duty to Exercise Independent Judgment
“173
Duty to exercise independent judgment
(1)
A director of a company must exercise independent judgment.
(2)
This duty is not infringed by his acting–
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(a)
in accordance with an agreement duly entered into by the
company that restricts the future exercise of discretion by its
directors, or
(b)
in a way authorised by the company's constitution.”
The purpose of this provision is to compel directors to reach decisions with an open
mind, free from bias and without having had fettered their discretion in the past. To
date, there have been no cases which have considered this particular provision.
Duty to Exercise Reasonable Care, Skill and Diligence
“174

Duty to exercise reasonable care, skill and diligence
(1)
A director of a company must exercise reasonable care, skill and
diligence.
(2)
This means the care, skill and diligence that would be exercised by a
reasonably diligent person with–
(a)
the general knowledge, skill and experience that may
reasonably be expected of a person carrying out the functions
carried out by the director in relation to the company, and
(b)
the general knowledge, skill and experience that the director
has.”
If the director does not believe in the merits of the decision of the board, must
he/she resign? If he/she goes along with the view of the majority of the board,
is he/she in breach of section 174? If he/she fails to supervise his/her fellow
directors, is this a breach of duty?
Madoff Securities International v Raven [2013] EWHC 3147 (Comm)

If the director has a limited role in the company and genuinely believes that
what he is being told by the other directors in the board is legitimate/true, will
he/she be in breach of duty where it transpires that the other directors were
involved in a fraudulent transaction and misrepresentations to investors and
he/she did not probe further into matters or the information he/she was given
by the board?
Weavering Capital (UK) Ltd. (In liquidation) v Peterson [2013] EWCA Civ 71

If the director has sufficient experience to do his job as a managing director
and has sufficient knowledge and understanding of the company’s business, is
he/she in breach of duty if he/she is not fully cognisant of all matters relating
to the industry in which the company is involved, e.g. insurance and
reinsurance?
ARB International Ltd. v Baillie [2013] EWHC 2060 (Comm)
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Duty to Avoid Conflicts of Interest
“175
Duty to avoid conflicts of interest
(1)
A director of a company must avoid a situation in which he has, or can have, a
direct or indirect interest that conflicts, or possibly may conflict, with the
interests of the company.
(2)
This applies in particular to the exploitation of any property, information or
opportunity (and it is immaterial whether the company could take advantage
of the property, information or opportunity).
(3)
This duty does not apply to a conflict of interest arising in relation to a
transaction or arrangement with the company.
(4)
This duty is not infringed–
(a) if the situation cannot reasonably be regarded as likely to give rise to a
conflict of interest; or
(b) if the matter has been authorised by the directors.
(5)
Authorisation may be given by the directors–
(a) where the company is a private company and nothing in the company's
constitution invalidates such authorisation, by the matter being proposed to
and authorised by the directors; or
(b) where the company is a public company and its constitution includes
provision enabling the directors to authorise the matter, by the matter being
proposed to and authorised by them in accordance with the constitution.
(6)
The authorisation is effective only if–
(a) any requirement as to the quorum at the meeting at which the matter is
considered is met without counting the director in question or any other
interested director, and
(b) the matter was agreed to without their voting or would have been agreed to
if their votes had not been counted.
(7)
Any reference in this section to a conflict of interest includes a conflict of
interest and duty and a conflict of duties.”

Is section 175 proscriptive or prescriptive?
ODL Securities Ltd. v McGrath [2013] EWHC 1865 (Comm)

Duties are stringent, but there is scope for informed consent:
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Re Annacott Holdings Ltd. [2012] EWCA Civ 998; [2013] BCC 98
Section 175(4)(b), Queensland Mines Ltd. v Hudson (1978) ALR 1 and Sharma v
Sharma [2013] EWCA Civ 1287

Was a director in breach of the duty to avoid a conflict of interest and duty
where he acted as an agent for the sale of the shares of the company on behalf
of the parent company shareholder, instructed solicitors to act on both their
behalf, and made a personal profit on the sale of the shares ostensibly in
respect of post-sale consultancy obligations owed to the company pursuant to
a consultancy agreement (which was untrue)? Could the shareholders who
received fewer pounds sterling per share than the director be imputed to have
given informed consent to the director’s breach of fiduciary duty on the
ground that the firm of solicitors acting for the director and the selling parent
company shareholder had knowledge of the terms of the consultancy
agreement?
Park’s of Hamilton (Holdings) Ltd. v Campbell [2014] CSIH 34; 2014 GWD 18-338,
Lord Drummond Young at paras [38]-[42]:
“the rule that a fiduciary may not make a profit out of a fiduciary relationship is
enforced strictly, and the exception for informed consent is interpreted
restrictively. The reasons for this are straightforward. Any fiduciary relationship is
based on considerations of trust, confidence and the utmost good faith.
Furthermore, it is normal to accord a very high level of discretion to a fiduciary,
and the supervision of the fiduciary's activities is generally minimal or nonexistent, at least at a day-to-day level. This is merely an aspect of the trust that is
reposed in a fiduciary. All of these considerations justify strict enforcement of the
rules. At a more practical level, in view of the lack of everyday supervision, in
particular, a small number of fiduciaries may be tempted to exploit their positions
for profit. The relative lack of supervision means that the information that is
required to bring such cases to account may be harder to discover than in other
legal relationships. At the same time, the high level of discretion typically
accorded to fiduciaries means that their activities are less amenable to control by
their principals. For all these reasons I consider that the strictness of the rules
governing fiduciary relationships is fully justified, and should not be relaxed…
Informed consent requires that the principal should be in full possession of all
material facts. For this purpose it is not enough that those facts may have been
communicated to an agent, such as a solicitor, acting for the principal; the
principal himself must be aware of the facts. Furthermore, the principal must
understand fully what the proposals are; in particular, he must understand his legal
rights under the fiduciary relationship and in what way those rights are to be given
up. Once again, it is essential that the principal himself should be aware of all of
these factors and apply his mind to them. The knowledge and understanding of an
agent for the principal are not sufficient. The only exception to this would arise in
a case where such an agent was empowered by the principal to undertake dealings
with the fiduciary on the principal's behalf, as where a solicitor was specifically
empowered to authorize the fiduciary to take remuneration. It is difficult to
imagine that such a case could arise otherwise than by clear instructions to the
solicitor, however, as the application of fiduciary duties is an important matter and
the principal must understand that he is authorizing the abrogation of such duties.
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At any rate this is nowhere near such a case. There was no suggestion that
[Holmes McKillop the solicitors acting for the director and selling shareholders]
were authorized by the shareholders to sanction payments to the [director].
Instead, the matter was considered by the board at the meeting on 5 July 2007 and
by shareholders following the circular letter of 16 August. The disclosure made at
that meeting and in the circular was manifestly incorrect, in suggesting that the
share premium was remuneration for consultancy services, and inadequate, in
failing to say anything about remuneration under the consultancy agreement. In
these circumstances it is abundantly clear that there was no informed consent.”

Was a director in breach of section 175 where he acted as a property agent for
the company in respect of a sale of its property to a third party, in terms of
which the director would be remunerated by the company and the purchaser
for his services?
The Northampton Regional Livestock Centre Co. Ltd. v Cowling [2014] EWHC 30
(QB)
The answer was ‘No’ because the director had obtained the authorisation of the board
of the company to the proposed sale and the board were fully informed and gave their
consent – see section 175(4)(b). In addition, there was nothing irrational about the
director’s behaviour in (a) failing to obtain advice in relation to the marketing of the
property, (b) marketing the property on an unconditional basis only, (c) failing to
resist Bank pressure or negotiate further concessions from the Bank and (d) selling the
property to a purchaser for £2.25m who immediately re-sold it to a third party on the
same day for £5m.

Can a sole shareholder who is also the sole director of a company take
advantage of section 175(4)(b) to authorise his own breaches of duty as
director?
Goldtrail Travel Ltd. v Aydin [2014] EWHC 1587 (Ch) - No
Duty not to Accept Benefits
“176
Duty not to accept benefits from third parties
(1)
A director of a company must not accept a benefit from a third party conferred
by reason of–
(a) his being a director, or
(b) his doing (or not doing) anything as a director.
(2)
A “third party” means a person other than the company, an associated body
corporate or a person acting on behalf of the company or an associated body
corporate.
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(3)
Benefits received by a director from a person by whom his services (as a
director or otherwise) are provided to the company are not regarded as
conferred by a third party.
(4)
This duty is not infringed if the acceptance of the benefit cannot reasonably be
regarded as likely to give rise to a conflict of interest.
(5)
Any reference in this section to a conflict of interest includes a conflict of
interest and duty and a conflict of duties.”

Where a trustee was appointed as a non-executive director of a number of
companies in which the trust had invested, does section 176 apply to proscribe
remuneration to that trustee/non-executive director for services rendered as a
professional trustee? No, since those benefits were received by the individual
in his capacity as a trustee, notwithstanding that there was a blurring of his
roles as a trustee and non-executive director. The remuneration was not
received because the individual was a director or doing anything as a director.
Pullan v Wilson [2014] EWHC 126 (Ch); [2014] WTLR 669 at para. [74] per Judge
Hodge QC
Substantial property transactions and section 190
“190 Substantial property transactions: requirement of members’ approval
(1)
A company may not enter into an arrangement under which–
(a) a director of the company or of its holding company, or a person connected
with such a director, acquires or is to acquire from the company (directly or
indirectly) a substantial non-cash asset, or
(b) the company acquires or is to acquire a substantial non-cash asset (directly
or indirectly) from such a director or a person so connected,
unless the arrangement has been approved by a resolution of the members of
the company or is conditional on such approval being obtained.
For the meaning of ‘substantial non-cash asset’ see section 191…
191 Meaning of “substantial”
(1)
This section explains what is meant in section 190 (requirement of approval
for substantial property transactions) by a “substantial” non-cash asset.
(2)
An asset is a substantial asset in relation to a company if its value–
(a) exceeds 10% of the company’s asset value and is more than £5,000, or
(b) exceeds £100,000.
9
For this purpose a company’s “asset value” at any time is–
(3)
a) the value of the company’s net assets determined by reference to its most
recent statutory accounts, or
(b) if no statutory accounts have been prepared, the amount of the company’s
called-up share capital.”

Does the above wording cover potential acquisitions of non-cash assets?
Smithton Ltd. v Naggar [2014] EWCA Civ 939; [2014] BCC 482 – The answer is
‘No’. See Arden LJ at para. [110]:
“Section 190 requires an arrangement (which can be a non-contractual
arrangement) under which a director or connected person acquires “or is to
acquire” [a substantial non-cash asset]. There is no basis for interpreting the
words “is to acquire” as “may acquire”. The fact that conditional arrangements
are permitted does not require this interpretation since even a conditional
arrangement must still satisfy the words quoted even if it is conditional. Since,
when the arrangement was made for the [contracts] to be written there was no
certainty that on closing out the [contract] holder would opt to acquire the
referenced shares, section 190 does not apply. The arrangement was not said
to be made on closing out and election to take the referenced shares.”
Ratification and section 239
“239 Ratification of acts of directors
(1)
This section applies to the ratification by a company of conduct by a director
amounting to negligence, default, breach of duty or breach of trust in relation
to the company.
(2)
The decision of the company to ratify such conduct must be made by
resolution of the members of the company.
(3)
Where the resolution is proposed as a written resolution neither the director (if
a member of the company) nor any member connected with him is an eligible
member.
(4)
Where the resolution is proposed at a meeting, it is passed only if the
necessary majority is obtained disregarding votes in favour of the resolution
by the director (if a member of the company) and any member connected with
him.
(5)
For the purposes of this section–
(a) “conduct” includes acts and omissions;
(b) “director” includes a former director;
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(c) a shadow director is treated as a director; and
(d) in section 252 (meaning of “connected person”), subsection (3) does not
apply (exclusion of person who is himself a director).
(6)
Nothing in this section affects–
(a) the validity of a decision taken by unanimous consent of the members
of the company, or
(b) any power of the directors to agree not to sue, or to settle or release a
claim made by them on behalf of the company.
(7)
This section does not affect any other enactment or rule of law imposing
additional requirements for valid ratification or any rule of law as to acts that
are incapable of being ratified by the company.

Does a sole shareholder who is also the sole director of a company have the
power to ratify his own breaches of duty as director?
Goldtrail Travel Ltd. v Aydin [2014] EWHC 1587 (Ch) - No
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2. Developments in the law relating to the statutory derivative action (sections
261 to 269 of the 2006 Act) and the law of unfair prejudice (section 994 of the
2006 Act)
Derivative Proceedings – See the Annex
Leave to raise derivative proceedings at stage 2 hearing

It has been held that the fact that a shareholder is not a minority shareholder,
e.g. a 50% shareholder, is not a bar to the grant of permission/leave:
Parry v Bartlett [2012] BCC 700
Phillips v Fryer [2013] BCC 176

The fact that there is an alternative remedy potentially available to the
shareholder does not operate as an absolute or independent bar to derivative
proceedings:
Parry v Bartlett [2012] BCC 700
Hughes v Weiss [2012] EWHC 2363 (Ch)
Phillips v Fryer [2013] BCC 176
However, the availability of an alternative remedy will be a persuasive factor in
English law, e.g. Kleanthous v Paphitis [2012] BCC 676 where leave was rejected on
the ground that the petitioning shareholder could have raised an unfair prejudice
petition under section 994. As such, much will depend on the facts of the case. Re
Singh Brothers Contractors (North West) Ltd. [2013] EWHC 2138 (Ch); [2014] 1
BCLC 649 is also an authority for the proposition that where section 994 is a more
appropriate remedy, then leave will be rejected.

Misconduct of director in paying excessive dividends and remuneration
payments was ratified by the shareholders signing the accounts every year. But
is that right in light of section 239 of the 2006 Act? Section 239 requires an
ordinary resolution to be passed:
Re Singh Brothers Contractors (North West) Ltd. [2013] EWHC 2138 (Ch); [2014] 1
BCLC 649

Where the petitioning shareholder is motivated by animosity towards the
director and shareholder as a result of a wholly separate dispute, this will not
satisfy section 268(1)(a) of the 2006 Act:
Re Singh Brothers Contractors (North West) Ltd. [2013] EWHC 2138 (Ch); [2014] 1
BCLC 649

Unlike the common law, there is no need for the petitioning shareholder to
establish ‘wrongdoer control’, i.e. that the party who it is alleged has engaged
12
in misconduct controls the company.1 However, where proceedings clearly
could have been brought in the name of the company and no objection was
raised on that ground, they should be so brought:
Bamford v Harvey [2013] BCC 311

Did sections 261 to 269 of the 2006 Act do away with the multiple derivative
action to enable a minority shareholder of a holding company to raise
derivative proceedings against a director of the subsidiary company? The
answer is “No”:
Universal Project Management Services Ltd. v Fort Gilkicker Ltd. [2013] 3 WLR 164
Abouraya v Sigmund [2014] EWHC 277 (Ch)

Is it appropriate to use the derivative action procedure to enable a claimant to
use his status as a shareholder in a parent company in order to advance his
interests as a creditor of a wholly-owned subsidiary? No, since to do so would
provide him with a means of enforcement unavailable to other creditors:
Abouraya v Sigmund [2014] EWHC 277 (Ch)
Unfair Prejudice – section 994 of the 2006 Act

Will the breach of pre-emption rights on transfer contained in a shareholders’
agreement or the articles amount to unfairly prejudicial conduct? No, since a
mere breach of a pre-emption agreement would not in itself constitute the
conduct of the affairs of a company - the act of purchasing the shares had not
been effected by or on behalf of the company:
Re Coroin Ltd. [2013] EWCA Civ 781; [2014] BCC 14

However, a petitioning shareholder could rely on the actions of his fellow
shareholders insofar as they amounted to the conduct of the company's affairs.
By denying the petitioning shareholder’s pre-emption right while he was still a
director, the purchasers of the shares had arguably interfered with the way in
which the company remunerated its directors and by diluting the shareholding
of the petitioning shareholder in the company, this could amount to conducting
a company's affairs in a manner that was unfairly prejudicial to the petitioning
shareholder.
Graham v Every [2014] EWCA Civ 191; [2014] BCC 376

Where a shareholder in a quasi-partnership company is removed as a director,
his shareholding is diluted, an attempt is made to introduce a third party as a
shareholder and all of his shareholding is subsequently transferred to a third
1
See also Wishart v Castlecroft Securities Ltd. 2010 SC 16. For an alternative view,
see D. Kershaw, “The Rule in Foss v Harbottle is Dead; Long Live the Rule in Foss v
Harbottle” (2015) Journal of Business Law (forthcoming).
13
party, such conduct was clearly unfair and prejudicial to his interests as a
shareholder:
Re I Fit Global Ltd. [2013] EWHC 2090 (Ch); [2014] 2 BCLC 116

A shareholder could not complain of unfairly prejudicial conduct which
occurred before he became a shareholder and to which all the shareholders at
the material time expressly consented. This was case irrespective of the fact
that the petitioning shareholder was a beneficiary of the shares under a family
trust when the alleged misconduct took place:
Re Batesons Hotels (1958) Ltd. [2013] EWHC 2530 (Ch); [2014] 1 BCLC 507
14
3. Recent developments in the case law

Piercing the corporate veil
Prest v Petrodel Resources Ltd. [2013] UKSC 34; [2013] 3 WLR 1
VTB Capital Plc v Nutritek International Corp. [2013] UKSC 5; [2013] 2 WLR 398

The effect of confidentiality obligations in a shareholders’ agreement or joint
venture agreement is broad enough to prohibit a shareholder from disclosing
confidential information about the company to a prospective buyer of the
shareholder’s shares. By disclosing private, confidential information about the
company to the prospective buyer, the shareholder was in breach of contract
irrespective of the fact that the latter signed a non-disclosure agreement prior
to the disclosure:
Richmond Pharmacology Ltd. v Chester Overseas Ltd. [2014] EWHC 2692 (Ch)

Introduction of the Small Companies (Micro-Entities’ Accounts) Regulations
2013 (SI 2013/3008):
Introduces exemptions from certain financial reporting requirements for very small
companies and enables very small companies to prepare and file abridged accounts by
introducing sections 384A and 384B into the Companies Act 2006. A very small
company is defined as one with an annual turnover of not more than £632,000, a
balance sheet total of £316,000 and not more than 10 employees.

Service of documents on directors, secretaries and others under section 1140
of the 2006 Act – broad enough to include service of court summons and other
court documents:
“1140 Service of documents on directors, secretaries and others
(1)
A document may be served on a person to whom this section applies by
leaving it at, or sending it by post to, the person’s registered address.
(2)
This section applies to–
(a) a director or secretary of a company…
(3)
This section applies whatever the purpose of the document in question.
It is not restricted to service for purposes arising out of or in connection with
the appointment or position mentioned in subsection (2) or in connection with
the company concerned.”
Section 1140 of the 2006 Act is intended to have a broad effect - Key Homes Bradford
Ltd. v Patel [2014] EWHC B1 (Ch)

What is a ‘debenture’? Is an unsecured loan agreement a ‘debenture’?
15
“738 Meaning of “debenture”
In the Companies Acts “debenture” includes debenture stock, bonds and any other
securities of a company, whether or not constituting a charge on the assets of the
company.”
Fons HF (In liquidation) v Corporal Ltd. [2013] EWCA Civ 304, per Lord Justice
Patten and Lady Justice Gloster at paras. [36]-[50]:
“the term [debenture] can apply to any document which creates or
acknowledges a debt; does not have to include some form of charge; and can
be a single instrument rather than one in a series... [the view that a loan
agreement when entered into is not a debenture owing to the fact that no debt
is created until drawdown of the indebted funds is] wrong, and unnecessarily
technical. The obligation to repay clearly arises on execution of the loan
instrument itself, albeit that such obligation may be contingent on drawdown
actually taking place.”

When is a person’s request to inspect or procure a copy of the company’s
register of members not for a ‘proper purpose’ in terms of section 117(3) of
the 2006 Act?
“116
Rights to inspect and require copies
(1)
The register and the index of members’ names must be open to the inspection–
(a) of any member of the company without charge, and
(b) of any other person on payment of such fee as may be provided.
(2)
Any person may require a copy of a company’s register of members, or of any
part of it, on payment of such fee as may be prescribed.
(3)
A person seeking to exercise either of the rights conferred by this section must
make a request to the company to that effect...
117
Register of members: response to request for inspection or copy
(1)
Where a company receives a request under section 116… it must within five
working days either–
(a) comply with the request, or
(b) apply to the court.
(2)
If it applies to the court it must notify the person making the request.
(3)
If on an application under this section the court is satisfied that the inspection
or copy is not sought for a proper purpose–
16
(a) it shall direct the company not to comply with the request, and
(b) it may further order that the company’s costs (in Scotland, expenses) on
the application be paid in whole or in part by the person who made the request,
even if he is not a party to the application.”
Burry & Knight Ltd. v Knight [2014] EWCA Civ 604; [2014] BCC 393, per Lady
Justice Arden at paras. [24]-[25]:
“Unless a company obtains an order under section 117(3) it must comply with
a request for access and a criminal penalty is imposed for non-compliance by
section 118. This is an important signal that Parliament attached importance to
the exercise of the right of access to the share register. I agree with the
registrar that the way the statutory provisions are framed reflects a strong
presumption in favour of shareholder democracy and a policy of upholding
principles of corporate transparency and good corporate governance. I also
agree with the registrar that these factors point in favour of the court
exercising its discretion “sparingly and with circumspection” where requests
are made by shareholders to communicate with fellow shareholders. The
reasons for this are obvious. If a member cannot communicate with fellow
members, it puts the board into a very strong position. The corporate
governance of a company is accordingly weakened. The relationship between
the board and the shareholders cannot operate as it is intended to operate with
the shareholders monitoring the activities of the directors. In my judgment, it
would require a strong case to prevent access for these reasons.
Moreover, it is in principle for shareholders to assess whether a
communication is of value to them and what action they should take.
Parliament cannot in my judgment be taken to have intended the court to take
a view about just how far the information which the member seeking access
wishes to give him is information of value. This would involve the court
making a commercial judgment as to the merits of the requesting member’s
view and would lead to satellite litigation which would delay a decision on
access. In some cases, however, it will be obvious that the information is of no
value, as where the information is already known to members or simply
nonsense. But if the court is in any doubt, it should not make a no-access
order.”

Is a member of an LLP a ‘worker’ for the purposes of section 230(3) of the
Employment Rights Act 1996? Why is this important?
Clyde & Co LLP v Bates van Winkelhof [2014] UKSC 32; [2014] 1 WLR 2047.

Company law reform: Small Business, Enterprise and Employment Bill 201415:
1. Requires companies (not LLPs) to maintain a public register of persons
with significant control over the company;
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2. Prevents the creation of new bearer shares and existing bearer shareholders
must surrender their bearer shares in return for registered shares;
3. Prohibits the use of corporate directors by UK companies, subject to
limited exceptions to be published in regulations in the future;
4. Replaces the annual return with an obligation to confirm at least once in a
12-month period that all required information has been delivered to
Companies House;
5. Enables private companies to hold information required by certain
statutory registers on a public register instead, e.g. the register of directors,
register of directors’ residential addresses, register of members, register of
company secretaries, etc;
6. Introduces a right for companies to impose restrictions on shares without a
court order where a person with a relevant interest in the company has
failed to comply with its disclosure obligations under the new ‘significant
control’ regime at 1. above;
7. Expands the matters or behaviour that a court must consider when
determining whether a director is unfit to act in the management of a
company and should be disqualified under the Company Directors
Disqualification Act 1986.
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ANNEX
265 Derivative proceedings
(1) In Scotland, a member of a company may raise proceedings in respect of an act or
omission specified in subsection (3) in order to protect the interests of the company
and obtain a remedy on its behalf.
(2) A member of a company may raise such proceedings only under subsection (1).
(3) The act or omission referred to in subsection (1) is any actual or proposed act or
omission involving negligence, default, breach of duty or breach of trust by a director
of the company.
(4) Proceedings may be raised under subsection (1) against (either or both)–
(a) the director referred to in subsection (3), or
(b) another person.
(5) It is immaterial whether the act or omission in respect of which the proceedings
are to be raised or, in the case of continuing proceedings under section 267 or 269, are
raised, arose before or after the person seeking to raise or continue them became a
member of the company.
(6) This section does not affect–
(a) any right of a member of a company to raise proceedings in respect of an act or
omission specified in subsection (3) in order to protect his own interests and obtain a
remedy on his own behalf, or
(b) the court's power to make an order under section 996(2)(c) or anything done under
such an order.
(7) In this Chapter–
(a) proceedings raised under subsection (1) are referred to as “derivative
proceedings”,
(b) the act or omission in respect of which they are raised is referred to as the “cause
of action”,
(c) “director” includes a former director,
(d) references to a director include a shadow director, and
(e) references to a member of a company include a person who is not a member but to
whom shares in the company have been transferred or transmitted by operation of
law.
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266 Requirement for leave and notice
(1) Derivative proceedings may be raised by a member of a company only with the
leave of the court.
(2) An application for leave must–
(a) specify the cause of action, and
(b) summarise the facts on which the derivative proceedings are to be based.
(3) If it appears to the court that the application and the evidence produced by the
applicant in support of it do not disclose a prima facie case for granting it, the court–
(a) must refuse the application, and
(b) may make any consequential order it considers appropriate.
(4) If the application is not refused under subsection (3)–
(a) the applicant must serve the application on the company,
(b) the court–
(i) may make an order requiring evidence to be produced by the company, and
(ii) may adjourn the proceedings on the application to enable the evidence to be
obtained, and
(c) the company is entitled to take part in the further proceedings on the application.
(5) On hearing the application, the court may–
(a) grant the application on such terms as it thinks fit,
(b) refuse the application, or
(c) adjourn the proceedings on the application and make such order as to further
procedure as it thinks fit…
268 Granting of leave
(1) The court must refuse leave to raise derivative proceedings or an application under
section 267 if satisfied–
(a) that a person acting in accordance with section 172 (duty to promote the success of
the company) would not seek to raise or continue the proceedings (as the case may
be), or
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(b) where the cause of action is an act or omission that is yet to occur, that the act or
omission has been authorised by the company, or
(c) where the cause of action is an act or omission that has already occurred, that the
act or omission–
(i) was authorised by the company before it occurred, or
(ii) has been ratified by the company since it occurred.
(2) In considering whether to grant leave to raise derivative proceedings or an
application under section 267, the court must take into account, in particular–
(a) whether the member is acting in good faith in seeking to raise or continue the
proceedings (as the case may be),
(b) the importance that a person acting in accordance with section 172 (duty to
promote the success of the company) would attach to raising or continuing them (as
the case may be),
(c) where the cause of action is an act or omission that is yet to occur, whether the act
or omission could be, and in the circumstances would be likely to be–
(i) authorised by the company before it occurs, or
(ii) ratified by the company after it occurs,
(d) where the cause of action is an act or omission that has already occurred, whether
the act or omission could be, and in the circumstances would be likely to be, ratified
by the company,
(e) whether the company has decided not to raise proceedings in respect of the same
cause of action or to persist in the proceedings (as the case may be),
(f) whether the cause of action is one which the member could pursue in his own right
rather than on behalf of the company.
(3) In considering whether to grant leave to raise derivative proceedings or an
application under section 267, the court shall have particular regard to any evidence
before it as to the views of members of the company who have no personal interest,
direct or indirect, in the matter.
(4) The Secretary of State may by regulations–
(a) amend subsection (1) so as to alter or add to the circumstances in which leave or
an application is to be refused,
(b) amend subsection (2) so as to alter or add to the matters that the court is required
to take into account in considering whether to grant leave or an application.
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(5) Before making any such regulations the Secretary of State shall consult such
persons as he considers appropriate.
(6) Regulations under this section are subject to affirmative resolution procedure.
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