A fair share: Correcting the Register of Members

It is increasingly common to see scenarios where the shareholders or directors of a company become embroiled in a dispute (or a dispute is threatening on the horizon) because the company’s statutory registers do not properly reflect the true factual position. Inaccuracies in the register of officers or members can have serious consequences, affecting voting rights, control within the company, entitlement to dividends, and even the overall value of an investment or ability to sell a shareholding.

Common causes of register disputes

Issues often arise in situations such as:

• A majority shareholder incorrectly recording the shareholding of a minority shareholder
• A shareholder or director’s name being removed from the register without proper justification or authority
• A transfer of shares being registered without authority or agreement
• A shareholding being diluted or misreported in company records
• A breakdown in relations between shareholders or directors

Consequences of an inaccurate register

When the register of members or directors is inaccurate, it can lead to disputes that may escalate quickly. These inaccuracies can undermine an individual’s rights as a shareholder or director, disrupt company operations, and create uncertainty about ownership and control.

Legal remedies under the Companies Act 2006

Under section 125(1) of the Companies Act 2006, a person who is aggrieved, a member of the company, or the company itself can apply to the court to rectify the register of members.

The court has broad powers to determine disputes about who legally owns shares and whether a person’s name should be included on the register. If the court finds that the register is inaccurate, it can order that it be corrected. In some cases, the court may also award compensation where a party has suffered loss as a result of the error.

Section 125 can (and often is) also be used in situations where a sole director and shareholder passes away in a circumstance where the company’s articles don’t allow the shareholding and directorship to pass automatically to the deceased’s executors/administrators – requiring a Court order under Section 125 to affect the appropriate rectification.

The legal process

If you are considering applying to the court to rectify the register, it is important to understand the process and applicable steps:

1. Gather evidence: It’s important to collect all relevant company documents (including shareholder agreements and articles of association), share transfer records, and relevant correspondence, to support the case;
2. Issue a claim: An application for rectification requires issuing proceedings within the High Court under section 125(1) of the Companies Act 2006;
3. Court assessment: The court will review the evidence and claim at a hearing, where a High Court Judge (usually an Insolvency and Companies Court Judge) will assess the conduct of the parties involved, and determine the true ownership of shares. The hearing is usually (but not always) a relatively straightforward process, but needs to be prepared for thoroughly and handled carefully by an appropriate advocate; and
4. Outcome: If satisfied that it is just and equitable to do so, the court will order the register to be corrected and, in some cases, award compensation for losses suffered and costs incurred.

Recent legislative changes

Recent reforms have increased scrutiny on company records and filings. The Economic Crime and Corporate Transparency Act 2023 introduced significant changes aimed at improving the accuracy and reliability of the Companies House register.

Key changes include:

• A new power allowing the Registrar to remove or reject filings where the information appears misleading, false, or deceptive. These powers began coming into force on 4 March 2024;
• Strengthened laws around false filings, making it an offence to provide misleading, false, or deceptive information to the Registrar without a reasonable excuse; and
• A more serious offence for knowingly submitting false information.

These changes are designed to improve transparency and protect the integrity of the company register. However, where there is a genuine dispute about share ownership or what the register should say, court action to rectify the register will still be necessary.

What to do?

If you suspect inaccuracies in the register, consider the following steps:

• Review company documents and share transfer records to identify discrepancies;
• Gather evidence to support your position;
• Seek early legal advice to understand your rights and options; and
• Act quickly to prevent the situation from escalating.

How can we help?

If you are facing a dispute about your shareholding or believe the company’s register of members does not accurately reflect the true position, it is important to act quickly. Early legal advice can make a significant difference in protecting your rights and preventing the situation from escalating.

The corporate disputes team at Ellis Jones has extensive experience advising shareholders, directors, and companies in complex share ownership and register rectification disputes. Our solicitor advocates can also assist with rectification hearings before the High Court, streamlining your matter and avoiding the need to engage a separate Barrister.

If you would like to discuss your situation in confidence and understand the options available to you, contact our team today to arrange an initial consultation. We can assess your position, explain the next steps, and help you take decisive action to protect your interests.