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Houldsworth Village Management Co Ltd v Barton [2019] EWHC 3590 (Ch)

by | Jan 17, 2020 | Law, Leasehold, Management Company, Property, Property Management | 1 comment

The case involved a frustrated leaseholder (Mr B) who used company law to assist him with his grievance against a leaseholder run management company. Mr B succeeded in fending off an application preventing him from finding out the identity of the owners of a company and their personal information as contained in the register of members.

This was despite Mr B applying unsuccessfully in a similar request relating to Pandongate House in Newcastle-upon-Tyne where it was held there was a very high likelihood that Mr B would use any list of members to contact leaseholders to continue his service charge campaign, that it was likely to harass the officers of the company and hamper the efficient running of it and it was contrary to the interests of other members. It should be noted that Mr B had failed to respond to evidence to counter these assertions in Pandongate House, a mistake which was not repeated in Houldsworth Village.

In Houldsworth Village Mr B made a request under section 116 of the Companies Act 2006 to inspect the register of members in order to contact fellow members to seek a general meeting of members and propose resolutions to remove and replace (1) the existing directors and (2) the managing agent in relation to a property known as Victoria Mill in Stockport.

The High Court considered an application from the claimant company (HVM) pursuant to Section 117 for a declaration that a request to inspect the register of members had not been made for a ‘proper purpose’. HVM accepted that the removal of directors was a ‘proper purpose’ but argued that the replacement of the managing agent was not.

HVM failed to establish that the purpose was improper. Given that (1) HVM’s objects, as set out in its memorandum, included acquiring, holding and managing property, and (2) the power to appoint managing agents to carry out the function of managing property was vested in the directors, the High Court held that it was proper for the leaseholder/ shareholder to try and contact the shareholders to seek a general meeting and propose resolutions to remove and replace both the directors and the managing agent.

As per Judge Hodge QC at para 42:

“..in my judgment it is an entirely proper and legitimate purpose for a member to seek to inspect the register of members with a view to seeking, through the general meeting, to effect a change in the constitution of the company’s board of directors with a view to the reconstituted board of directors then being in a position to review the propriety of the appointment, and terms of appointment, of the existing managing agents. In my judgment, that is an entirely proper purpose.”

Generally it is established that the capacities of a member and a leaseholder are separate. However this case illustrates just how inter locked the two capacities can be. A person who is both has different rights in each capacity which are derived from different contracts. Rights of the members arise under the Articles. As members, they can take part in the running of the company to the extent that they can vote on resolutions, request meetings of the company, and appoint a board to manage it. A member has rights of recourse under the Companies Act 2006 if their rights have been infringed. However, the day-to-day management of the company is for the board and not the shareholders. Leaseholders’ rights arise under the lease, and they have certain legal protections for example the reasonableness of service charges under Section 19 of the Landlord and Tenant Act 1985.

This case illustrates a leaseholder qua shareholder using company law to further his interests as a leaseholder and potentially influence the decision making at board level. Clearly the articles and memorandum of the claimant company as above were an important factor towards Mr B’s successful Judgment. Perhaps the decision would be different if model articles under the Companies Act 2006 had been adopted with out reference to the particular object of management of the premises. In any event it is likely the register of members would have had to have been disclosed for the purpose of removing the directors notwithstanding the company’s constitution. Indeed that part of the request was not disputed by the claimant company.

We will wait to see if this decision will encourage future requests by leaseholders/ shareholders to inspect the register of members for purposes relating to management and director removal.  It should be noted that there is criminal sanction on the misuse of that information under section 119 of the Companies Act 2006.  How much of a deterrent this section will be is another matter.

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James Compton

James Compton

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