Summary
In this article, we consider the recent judgment in the matter of Sir Henry Royce Memorial Foundation v Hardy [1], in which HHJ Matthews was required to consider the validity of a request made by Mark Gregory Hardy (“Hardy”), a member of The Sir Henry Royce Memorial Foundation (the “Foundation”), under section 116 of the Companies Act 2006 (“CA 2006”) for access to the register of members for the Foundation.
Background
Whilst Hardy was acting as the finance director of the Rolls-Royce Enthusiasts Club (the “Club”), he claimed serious wrongdoings in the Club’s financial affairs which included allegations of fraud, theft and false accounting against five of its directors.
In a fishing expedition, aimed at uncovering any wrongdoings, Hardy exercised his right under section 116 CA 2006 and made a request to inspect and take a copy of the register of members of the Foundation along with a similar request of the Club.
A request under section 116 CA 2006 must contain the information set out in section 116(4) CA 2006, which includes the purpose for which the information is to be used. Hardy’s request contained such purposes, namely:
- for an explanation as to why the Foundation’s annual general meeting (“AGM”) had not been held;
- to produce to the meeting the relevant audited accounts and to answer questions on those accounts; and
- to remove five directors from the Foundation on the grounds of their gross negligence arising from their misconduct and misfeasance as directors of the Club.
Hardy’s request did not, however, state whether the information would be disclosed to any other person and what they would be using the information for, which was also required under section 116(4)(d) CA 2006.
The Foundation responded by refusing the request under section 117 CA 2006 stating that they intended to apply to the court for an order that it was not required to comply with Hardy’s request.
Hardy replied to this refusal outlining that he had noticed that he had “inadvertently omitted” from his request the statement that he would not be making the information available to any other person and confirmed that this was an oversight on his part.
The Foundation issued a claim under section 116 CA 2006 for the court to grant an order that it was not required to comply with Hardy’s request.
Decision
HHJ Matthews held that the Foundation succeeded in its claim and that it would make no access order.
In reaching his decision, HHJ Matthews outlined the following key considerations:
Validity of the request
Hardy’s initial request under section 116 CA 2006 did not comply with section 116(4) CA 2006 as it did not include any statement required by section 116(4)(d), as to who the information would be shared with.
Despite Hardy subsequently providing this information, HHJ Matthews found that this was insufficient as the invalid notice could not be corrected and made whole by the additional information being provided subsequently. At the date of the request, the Foundation should have been in receipt of all the relevant information, especially given:
- the time periods (five days to issue proceedings) if a valid request was received and the Foundation wished to challenge it; and
- the criminal sanctions on the Foundation and its officers (up to two years’ imprisonment) under section 118 CA 2006 for a breach.
HHJ Matthews therefore found the request to be invalid.
Proper purpose
Even if the request made by Hardy was valid, the court would have made a no-access provision order on the basis that at least one of the stated purposes was improper. The first two purposes in relation to the AGM and the audited accounts were acceptable, but HHJ Matthews indicated that the third, in relation to the removal of the five directors was less so. This was because, at the time of the request, all of the allegations made against the directors of the Foundation were in their capacity as directors of the Club. There was nothing alleged against the five directors by Hardy in their capacity as directors of the Foundation which would justify the request for details of the members meeting for the purpose of removing them from office.
Fear of misuse by Hardy
The Foundation had provided evidence of Hardy’s conduct in a range of legal matters to display that he might use the information for the purposes other than those he stated. However, the court was not satisfied that, on the evidence, Hardy’s unstated purpose was to threaten, harass or intimidate members of the Foundation and, as such, HHJ Matthews did not entertain this assertion.
Comment
The decision handed down by HHJ Matthews highlights the importance of following the statute closely in order to bring a request under section 116 CA 2006. As a company and its directors face strict punishments for a breach, any request must be made without amendment and must include all requisite information to be considered by the courts. The courts will take into consideration the wider context when assessing the validity of a request under section 116 CA 2006 and therefore fishing expeditions with improper cause will be struck out by the courts and can result in costly litigation. Care and attention must therefore be taken when applying to the courts under section 116 CA 2006 and legal advice should be sought before making such application.
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[1] [2021] EWHC 714 (Ch)
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