There are divergent views on the issue of court's powers to rectify entries in the register of shareholder under the UK's company law. Generally the powers of the court under the company law are viewed sui generis and definitive of the scope of court's jurisdiction to entertain applications to rectify the register of shareholders. Disputes over title to shares in companies are a commonplace and the same is to be resolved within the framework of company law. This issue, however, came for a review before a UK commercial court for the purpose to interpret the law on the subject.1 The commercial court rejected the existing view2 and redefined the threshold to be surpassed by an applicant to successfully invoke the court's jurisdiction.3
Prior to the advent of Royal Westminster Investment case, it was commonplace for disputes over title to shares in BVI companies to be resolved within the ambit of law4, which governs rectification of share registers. But it now seems that statutory rectifications are on their way out, under the auspices of superior courts, which have significantly limited the court's jurisdiction to grant rectification in the manner it stood accustomed to under the companies' law.
For example, a case arose out of a matrimonial dispute between a Russian couple domiciled in Switzerland.5 The wife's claimed ownership of shares in a BVI company called Xitrans Finance Ltd, and she attempted to get an order to freeze the disputed shares. Wife asserted a beneficial interest in the company's shares and alleged that the shares registered in the name of the husband, were held by him on the basis of a constructive trust and the same formed part of the matrimonial estate. She accordingly sought rectification of the register of members of the company under section 43(1) of the BCA.
(i) "The company was in no position to raise any argument against the court making a declaration that wife was entitled to be registered as a shareholder".
(ii) Where such relief stood granted, the order to be made would not be for rectification against the company, rather it would be an order against husband ordering him to transfer the relevant shares to the wife.
(iii) Wife would then be in a position to require the company to register her as a member in respect of those shares.
(iv) Where the company refuses to do so, only then would an issue arise between wife and the company.
(v) The issue between wife and the company would form the basis of new proceedings.
(vi) Presumably, the present rectification proceedings have been brought to establish wife's entitlement to be registered as a result of having become a transferee.
(vii) There was no issue between wife and the company, the claim against the company as a defendant was not maintainable and was struck out.
In fact, the issue before the court was whether a real issue was established for the purpose of service out.6
In another Case7 the claimants sought rectification of the register of members of a company called Nilon Limited under section 43 of the company law (BCA). The claim was based on an implied contract of allotment for shares, purportedly entered into between the Claimants and the company. One of the defendant was holder of the shares and the promoter of the company. The claimants claimed to have paid consideration for the shares under the contract of allotment and had received payments of profits from the company ('dividends'), the claimants asserted a beneficial interest in the shares and sought, inter alia, declarations as to ownership of the shares, specific performance of the contract of allotment and rectification of the register of members.
The company applied to strike out the claim made against it and the scope of section 43 came up for analysis and interpretation before the commercial court. In granting the company's application, the court made a number of notable findings.8 The court in its findings held that:
(a). A company's register of members accurately reflects the state of its membership, not to establish title to shares, and determines whether a defendant is in breach of contract to procure shares that a company will issue.
(b). The disputes statutory provisions9 differ from BCA provisions10 to the extent that under the BVI legislation the only information whose omission can be complained of is the name of a person who holds registered shares.
(c). The commercial court came to the conclusion that English Court of Appeal11 erred because in an earlier decided case where appellant had no immediate right to be registered, it treated the ancillary provisions (ie those granting discretion) as conferring a self standing jurisdiction to decide who owns the shares, regardless of whether the company's register of members was correct.
The Court of Appeal in its judgment,12 however, allowed the appeal, considered the approach taken in Re Hoicrest to be appropriate and took a broad view on questions of jurisdiction and discretion under section 43 of the companies law. The judgement made the following important findings:
a) The court would have jurisdiction to rectify the register under Section 43 (2) where questions concerning the applicant's right to have his name entered on the register arose between the members or alleged members inter se without involving the company. In other words it is not necessary for the company to be in breach of its obligations to the applicant for the court to exercise its jurisdiction.
b) The discretion conferred by law requires the court in such proceedings to have regard to equitable as well as legal rights vested in such a party. In other words, if the court finds that the applicant has established a beneficial interest to the shares in question, it is empowered to give effect to that interest by declaration and by rectification of the register to accord with the declared entitlement to registration as legal owner of the shares.
c) The court has the jurisdiction under Section 43 where it is appropriate to decide relevant disputes concerning entitlement to registration and the law enables it to determine any such dispute prior to deciding whether or not to permit rectification of the company's register of members.
d) The court is not obliged to strike out an application for rectification of the register where the party who claims such relief is unable to assert an entitlement to registration.
e) A claim for rectification is primarily against the company and the registered holder of the shares whose registration is in question. The decision confirmed that under BVI law the principle laid down13 will apply, in deciding an application for service out, the court will only consider those causes of action which have been specifically pleaded. There may be room to broaden application of this principle under BVI law as per appeal decision of the UK Supreme Court which relaxed the inflexibility of above stated approach.14
A company formed and registered under the company law is required to keep a register of its members containing, inter alia, the name and address of person who hold registered shares in the company, the number of each class and series of registered shares need by each shareholder and the date on which any person ceased to be a shareholder.15 Where information required to be entered in the register of members16 is omitted from the register, fraudulently or without sufficient cause or there is unreasonable delay in entering such information in the register, any person or a member of the company aggrieved by the omission, inaccuracy or delay can apply to the court17 for an order that register be rectified.
Where rectification proceedings are brought under Section 152 (1), the court has a discretionary power to determine any question relating to the title of the party to the proceedings, whether the question arises between two or more members or alleged members or between members or alleged members of the company.18
Furthermore, the law expressly provides that the court may determine any question that may be necessary or expedient to be determined for the rectification of the register of members.19 The said provisions of Pakistan's Corporate law are quite identical to British law, hence the British court's rulings over the issue will have persuasive value for guidance and interpretation.
(Author is an advocate and is currently working as an associate with Azim-ud-Din Law Associates Karachi. To see author's other areas of interest visit Zafars Blog on International Studies http://blogoninternationalstudy.blogspot.com/)
1. See Section 43 of the BVI Business Companies Act, 2004. It reads: 43. (1) If
(a) Information that is required to be entered in the register of members under section 41 is omitted from the register or inaccurately entered in the register, or
(b) There is unreasonable delay in entering the information in the register,
a member of the company, or any person who is aggrieved by the omission, inaccuracy or delay, may apply to the Court for an order that the register be rectified, and the Court may either refuse the application, with or without costs to be paid by the applicant, or order the rectification of the register, and may direct the company to pay all costs of the application and any damages the applicant may have sustained.
(2) The Court may, in any proceedings under subsection (1), determine any question relating to the right of a person who is a party to the proceedings to have his name entered in or omitted from the register of members, whether the question arises between
(a) Two or more members or alleged members, or
(b) Between members or alleged members and the company,
And generally the Court may, in the proceedings, determine any question that may be necessary or expedient to be determined for the rectification of the register of members.
2. Royal Westminster Investments S.A. and Others v Nilon Limited and another (Claim No BVIHCV 2010/039).
3. Jurisdiction stands vested see Id. n.I.
4. Id. n.I.
5. Elena Rybolovleva v Dmitri Rybolocleva and others: Case No BVI HCV 2008/043.
6. The Court did not address the precise scope of section 43.
7. Id. n.2.
8. December 2010 judgement about the scope and limits of section 43.
9. See Section 359 (1) of the English Companies Act, 1985.
10. See Section 43 (1) and 41 of the BCA.
11. In Re Hoicrest Case.
12. Id. n.I.
13. In Metall und Rohstoff AG v Donaldson Lufkin & Jenrette Inc and Another [1990] 1 QB 391.
14. NML Capital Ltd v Republic of Argentina [2011] UKSC 31.
15. See the provisions of Section 147 of the Companies Ordinance 1984.
16. Id.
17. See the provisions of Section 152 of the Companies Ordinance.
18. See the provisions of Section 152 (3).
19. See the provisions of Section 152 (2).