The Devil is in the Detail: Why Misguided Shareholder Applications for Company Registers Fail

Introduction For residential management and freehold companies, dealing with requests for company information can be a delicate balancing act. Shareholders have statutory rights to inspect company records, but these rights are not absolute. They are strictly governed by the Companies Act 2006 to protect the privacy of other members and prevent the misuse of personal data.

At Huttons Law, we frequently advise residential management companies on how to handle requests made under Section 116 of the Companies Act 2006. A recent High Court case we were instructed in relation to serves as a perfect reminder of how strictly the courts interpret these rules—and why shareholders who submit misguided or incomplete applications do so at their own peril.

The Strict Rules of Section 116 Section 116 allows a member of a company to inspect the register of members. However, to prevent abuse (such as data harvesting or harassment), Section 116(4) dictates that any request must contain specific information, including:

1. The Proper Purpose: A clear explanation of what the information will be used for.
2. Disclosure Intentions: An explicit statement detailing whether the information will be disclosed to any other person, and if so, to whom and for what purpose.

If a company receives a request that it believes is invalid or made for an improper purpose, it has a strict five-working-day window to either comply or apply to the court under Section 117 for an order stating it does not need to comply.

The Case Study: In a recent matter handled by our commercial disputes team Huttons Law, a leaseholder and shareholder of a large residential management company requested access to the company’s register. Her stated purpose was simply to “communicate with fellow members regarding matters relating to the Company.”

Crucially, the shareholder failed to state whether she intended to disclose the register to any third parties.

Acting swiftly, we advised the management company that the request was legally invalid. We applied to the High Court for an order directing the company not to comply. The shareholder later attempted to “correct” her mistake by sending a follow-up letter confirming she would not share the data.

The Court’s Verdict: No Room for Retrospective Fixes the court ruled firmly in favour of our client, declaring the shareholder’s notice invalid. The judgment highlighted two vital legal principles for freehold and management companies:

• Zero Tolerance for Omissions: Relying on the precedent of Sir Henry Royce Memorial Foundation v Mark Gregory Hardy [2021], the court affirmed that the failure to state whether information will be disclosed to third parties is instantly fatal to a request.
• No “Second Chances” on a Bad Notice: A request is either valid or invalid at the time it is made. A shareholder cannot retrospectively “fix” a defective notice with a follow-up email or letter days or weeks later. They must submit a brand new, fully compliant request.
• Vague Purposes are Not Proper Purposes: The court noted that merely stating a desire to “communicate with fellow members” is insufficient. To pass the “proper purpose” test, the specific nature and reason for that communication must be transparently detailed.

Takeaways for Residential Management Companies Shareholder disputes in residential developments can quickly become contentious, and the control of personal data is a serious responsibility for any board of directors. If your company receives a Section 116 request:

Seek Legal Advice: Mismanaging a valid request can result in criminal sanctions for the company and its directors. Conversely, successfully challenging an invalid request protects your members and can result in adverse costs being ordered against the misguided applicant.

Act Fast: You only have five working days to respond or apply to the court.

Scrutinise the Details: Do not hand over sensitive member data if the request is vague, lacks a proper purpose, or omits mandatory statutory statements.

Contact our commercial teams today to see how we can help or email us at hello@huttonswlaw.co.uk