The Primacy of Rectification

The Court of Appeal case of Bland v Keegan [2024] EWCA Civ 934 (05 August 2024)

Under the Companies Act 2006 (“CA 2006”), companies must maintain a register of their members, which serves as prima facie evidence of the required information. A company's members include the subscribers of its memorandum at incorporation and anyone who agrees to become a member and whose name is entered in the register. Membership status is acquired only when both these conditions are met. If the register contains errors, any affected person, the company, or a member can apply to the court for rectification. Additionally, members can pass resolutions in writing, with ordinary resolutions requiring a simple majority and special resolutions needing at least 75% approval. Members can also initiate a voluntary liquidation of a solvent company through a special resolution, leading to the distribution of assets and the company's dissolution.

In this case, the appellant, initially the sole director and shareholder of JDK Construction Limited, later transferred half of the company's shares to her daughter-in-law, J, who also became a director. After a breakdown in their personal relationship, J transferred the remaining shares from the appellant to herself, allegedly forging the appellant's signature, and subsequently passed a resolution to wind up the company and appoint liquidators.

The appellant challenged the validity of this transfer and the resolution, claiming the forgery made the liquidators' appointment invalid. However, the court upheld the liquidators' appointment, ruling that the company's register of members, which listed J as the sole shareholder at the time of the resolution, was conclusive. Even if the transfer was forged, the register's records were deemed accurate and binding, validating the resolution.

The Court of Appeal unanimously dismissed the appeal, upholding the decision that the identity of a company's members, and thus the validity of a Written Resolution, is determined by the entries in the company's register of members at the time of the resolution, unless a court orders a retrospective rectification. The court found that J was the sole member at the relevant time, and the resolutions were valid, leading to the valid appointment of Liquidators.

Key reasons for this decision include:

1. Section 112 of the CA 2006: Establishes that membership of a company is based on being entered in the register, reflecting a fundamental principle of UK company law.
2. Supreme Court Ruling in Enviroco: Reinforces that the person listed on the register is considered the member, barring any contrary provisions or rectifications.
3. Arguments on Forgery and Fraud: The appellant's claim that their deletion from the register due to a forged document was a nullity was rejected. The court determined that the register entries remain presumptively valid until rectified by court order, even in cases of fraud or forgery.
4. Rectification of the Register: The court has the discretion to order rectification with retrospective effect, but this is not automatic and depends on the circumstances, including potential prejudice to other members or third parties.

The court emphasized that existing entries on the register are not simply disregarded but must be challenged through proper legal channels.

This decision reaffirms that entries in a company's register of members are presumed valid for voting purposes, even if a transfer was fraudulent or forged. The listed members are considered valid unless a court orders rectification. For victims of wrongful transfers, the recommended first step is to seek a court order to correct the register under section 125 of the CA 2006 (section 43 of the BVI Business Companies Act), along with any necessary orders to address issues that arose while the register was inaccurate.