Court of Appeal decision: Bland and Mayo v Keegan

Answer

Overview

The recent case of Bland and Mayo v Keegan (2024), decided by the Court of Appeal, reinforces the importance of the company's register of members in determining the identity of the company's members who are eligible to vote on resolutions and of not relying on Companies House records alone.

In Bland and Mayo v Keegan, the Court of Appeal ruled that, subject to express provision to the contrary, entries on a company's register of members are presumptively valid individuals listed on this register and are to be considered the company's members, even in situations where there may be allegations of fraud or forgery. This presumption remains unless and until a register is rectified.

During M&A due diligence on a target company, reviewing the register of members is often an extensive exercise, particularly where the public records on Companies House are incomplete, inconsistent with information filed at Companies House or outdated.

Case background

JDK Construction Ltd, a family-owned company, was incorporated in 2013 with a share capital of 100 ordinary shares of £1 each. Jeanette Keegan, mother to Darren Keegan, was the sole subscriber and director of the company at the time of incorporation. In 2015, Jeanette transferred 50 ordinary shares to Darren’s wife Julie. Julie was also appointed as director of the company. The transfer and appointment were accurately reflected by electronic filings on Companies House. In 2019, when relations deteriorated between Jeanette, Julie and Darren, Julie executed a stock transfer form purporting to transfer Jeanette’s 50 ordinary shares to herself. She did so by signing “J. Keegan” in the box on the stock transfer form indicated as being for the signature of the transferor. Julie subsequently filed details of the share transfer and the removal of Jeanette as a director at Companies House.

Darren and Julie started divorce proceedings and in 2021, Julie, purporting to act as sole member of the company, passed a written resolution to wind up the company and appoint liquidators. The written resolution first resolved, by special resolution, that the company be wound up voluntarily, and secondly, by ordinary resolution, that Andrew Bland and Janet Mayo be appointed joint liquidators. In brief, Jeanette disputed this, claiming the stock transfer form had been forged and she still held 50 ordinary shares in the company. Jeanette claimed the written resolution passed by Julie was invalid. In light of this, Bland and Mayo, the liquidators, also sought a court declaration to clarify the validity of their appointment.

First instance

In the first instance, the High Court ruled that the company’s register of member’s was decisive in determining who were the shareholders of the company at a given time, even if the stock transfer form were to be a forgery. Jeanette appealed.

Court of Appeal

The Court of Appeal dismissed Jeanette’s appeal and confirmed the validity of the appointment of the liquidators.

Lord Justice Snowden reviewed authorities that regulate membership and register amendments in the Companies Act 2006 (the act). Section 112 of the act was of particular focus for the definition of a member of the company. In accordance with the act, a ‘member’ is a person who either is a “subscriber of a company’s memorandum” on incorporation or a person who “agrees”’ to become a member and whose name is entered in the register of members of the company. 

This represents a fundamental principle of UK company law – namely that, except where express provision is made to the contrary, the person on the register of the members at the relevant time is the member to the exclusion of any other person, unless and until the register is rectified. The Court of Appeal found that this principle still applied for the purposes of determining the validity of members’ resolutions, even where a member's name had been wrongly removed from the register as a result of a forged stock transfer form. The law doesn’t simply disregard the entries on the register and any errors must be corrected through legal proceedings.

For the intention of determining the validity of a written resolution, the identity of the members will be based on the entries in the registers of members at the time the resolution is passed. At the time when Julie passed the written resolution, she was the only member on the company’s register. Resultantly, the Court of Appeal held that the written resolution to wind up the company and appoint the liquidators was valid.

Practical implications

This court decision highlights the importance of maintaining an accurate register of members and using the appropriate legal proceedings to correct errors. This case serves as an important reminder of maintaining an accurate register of members as it establishes legal ownership, determines voting rights within a company, even when the erroneous changes are a result of fraud or forgery.

In the course of M&A, it’s imperative that the register of members is up to date, and any errors are corrected. The register of members must reflect the true ownership and voting rights within a company, relying solely on Companies House is insufficient.

Maintaining accurate records is a legal necessity that can have significant implications in corporate deals and disputes.

Hope Oraka is a trainee solicitor in the technology, IP and information team at Taylor Wessing.