The Court of Appeal (CoA) clarified that even if a stock transfer was forged, the company’s register of members is conclusive in determining the identify of its members.
Background:
JDK Construction Ltd was incorporated in 2013 with a share capital of 100 ordinary shares. The sole director and holder of all the shares was Mrs. Jeanette Keegan. However, the company was controlled and managed by Jeanette’s son Darren, who is married to Julie. Julie became the second director in October 2015 and acquired 50 ordinary shares by transfer from Jeanette. This transfer was filed with Companies House.
The relationship between Jeanette and her son and daughter-in-law broke down in early 2019. In April 2019, Julie transferred the remaining 50 shares from Jeanette to herself by signing J. Keegan. This transfer and the termination of Jeanette’s appointment as a director were sent to Companies House in May 2019.
The family reconciled in March 2021 and shortly after Darren and Julie separated and divorced. On 16 July 2021, Julie signed a written resolution of the company. That resolution resolved that the company be wound up voluntarily and that the respondents be appointed joint liquidators. After Jeanette became aware of the written resolution, her solicitors wrote to Julie on 13 September 2021, denying that she had signed the Stock Transfer Form, and contending that the written resolution was invalid.
Jeanette started proceedings. The core issue was whether a company’s register of members, showing the appellant’s shares transferred to another, was conclusive for validating the resolution. The High Court ruled in Julie’s favour. Jeanette appealed.
Decision:
The CoA dismissed the appeal and upheld the decision of the High Court noting that the register is prima facie evidence of the members and the validity of resolutions passed by members unless rectified by the Court.
Despite the alleged forgery, there was no authority directly addressing the removal of a member’s name due to forgery affecting voting rights. The CoA’s decision referred to the general principles set out in Enviroco Ltd v Farstad Supply A/S [2011] and underscored the principle that the person listed in the company’s register of members is deemed to be a member, to the exclusion of others until the register is rectified by application to Court.
Consequently, since the register is conclusive, the shareholder resolution was valid and effective as was the appointment of the liquidators.
Implications:
This decision serves as a good reminder to check the official register to ensure that you are a properly registered member but also that there has not been any unrecognised transfer. Another significant implication is the conclusiveness of the register of members and the need to maintain it accurately. Courts will only consider the validity of any written resolution based on the membership according to the register.
Any rectification of the register needs to be made in accordance with Section 125 of the Companies Act 2006. Finally, this judgement highlights the problems fraud and forgery could create and the need for the courts to intervene in a separate instance.