Who controls your Company, and when did you last check that the Companies House register reflects this?
The Court of Appeal in London recently considered whether a resolution based on fraud was a resolution, nonetheless.
Background
The Company was incorporated in 2013 with the Applicant as the sole shareholder and director. Her son ran the business.
In 2015, his wife was appointed as a director and acquired half of the shares. By 2019, the personal relationship between the Applicant, her son, and his wife had broken down. The wife then executed a stock transfer form purporting to transfer the remaining shares to her and terminating the Applicant’s appointment.
The Applicant and her son reconciled in 2021 after his relationship with his wife had broken down. Holding herself out as the sole director, the wife signed a Written Resolution of the Company to wind it up voluntarily and appoint the Respondent as liquidators. When this came to light, the Applicant denied signing the Stock Transfer Form and contended that the Written Resolution was invalid.
The High Court in Manchester upheld the register’s validity as conclusive evidence of membership. Based on the information in the register at the time, the resolution appointing liquidators remained valid.
The Applicant appealed to the Court of Appeal.
Judgment
Upholding the decision of the High Court, the Court of Appeal held that a company resolution passed in good faith based on the information in the register is valid and enforceable. Noting the potential for someone to be wrongly removed, they stressed that there are legal avenues to challenge such an error, such as applying for rectification of the register.
“In the absence of any such court order having been made for rectification of the Company’s register of members with retrospective effect, I consider that the Judge hearing the IA Application was right to rely upon the (presumed) state of the register of members when considering the validity of the Written Resolution. He was therefore right to hold that [the wife] was the only member of the Company at the relevant time, that the resolutions contained in the Written Resolution were valid and effective, and that the Liquidators were validly appointed.”
Comment
The apparent injustice of the wife’s seeming to benefit from her fraud must be balanced with the need to preserve the register. To open the register to question would undermine its purpose, whereas a retrospective rectification would not.
“Never tell anyone outside the family what you are thinking again.”
The Godfather (1972)
Who controls your Company, and when did you last check that the Companies House register reflects this?
For more information about this article or any other aspect of corporate law, get in touch with your Napthens Solicitors in Preston, Liverpool, Blackburn, and across the North West, today.
