Don't forget the register

The recent decision of Glencoe Developments Ltd v Sneddon [2012] CSOH 43 should serve as a wakeup call for all companies, in ensuring that their statutory registers are kept up to date at all times.

In this case, the court held that a resolution was invalid because a “shareholder” is not entitled to vote at a general meeting of the company if their name is not recorded in the register of members.

In Glencoe, there were two shareholders of the company (“X” and “Y”), who held two shares each. X purported to transfer one of her shares to a third party (“Z”), creating three shareholders of the company in total. The relevant filings were made at Companies House to reflect the transfer; however the statutory registers were not updated and Z was not entered into the register of members as a shareholder.

A general meeting of the company was held on 20 June 2011, at which a resolution was supposedly passed approving the transfer of a substantial property asset of the company. X and Z were present at the meeting and purported to approve the resolution. In terms of the articles of association, two members were required to be present at a general meeting for a quorum to be constituted. As such, X and Z were of the view that a quorum was present at the general meeting and that the resolution was valid.

The resolution was subsequently challenged by Y on behalf of Glencoe Developments Ltd and a court action was raised. Y contended that (among other defects) a quorum was not present at the general meeting and the resolution was accordingly invalid, as Z’s name was not recorded on the register of members and he was not therefore a member at that time.

The court found in Y’s favour. It relied on s 112(2) of the Companies Act 2006, which provides that every person whose name is entered into the register of members of a company is a member of that company. It followed that Z was not a member of Glencoe Developments Ltd and a quorum was not present at the general meeting on 20 June 2011. The resolution was viewed as invalid and the purported transfer of company property was set aside.

In practice, the situation often arises where share certificates are issued and filings are made with Companies House, but statutory registers are not written up to reflect the relevant changes. Glencoe highlights the importance of companies maintaining up-to-date statutory registers at all times. As soon as possible after a stock transfer form has been completed and the appropriate stamp duty has been paid, the company should ensure that its statutory registers are written up accordingly. If it fails to update its register of members, the shares will not legally transfer to the prospective new shareholder. Statutory registers must also be written up each time a share allotment is completed.

Maintaining an updated statutory register will help to ensure that no one other than a member of the company can conduct company business and vote on decisions affecting the company.

It is also important to remember that failing to maintain an updated statutory register constitutes an offence under s 113 of the Companies Act 2006. Such an offence will be deemed to be committed by the company and also by every member of the company who is in default. A person found guilty shall be liable on summary conviction to a fine of up to £1,000.