Neutral Citation Number: [2024] EWCA Civ 934

Case No: CA-2023-002131

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN MANCHESTER
His Honour Judge Hodge KC (sitting as a Judge of the High Court)
[2023] EWHC 2805 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: Monday 5 August 2024

Before :

LADY JUSTICE KING

LADY JUSTICE ASPLIN
and
LORD JUSTICE SNOWDEN
---------------------

IN THE MATTER OF JDK CONSTRUCTION LIMITED

Between :

ANDREW BLAND and JANET FRANCIS MAYO Applicants/

Respondents
- and –

JEANETTE KEEGAN Respondent/

Appellant

---------------------

Steven Fennell (instructed by Mills & Reeve LLP) for the Appellant
Louis Doyle KC and Douglas Cochran (instructed by Primas Law) for the Respondents

Hearing date : 9 May 2024

(additional written submissions received on 26 July 2024)
---------------------
Approved Judgment
This judgment was handed down remotely at 10.30 a.m. on Monday 5 August 2024 by
circulation to the parties or their representatives by e-mail and by release to the National
Archives.

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 Judgment Approved by the court for handing down. JDK Construction Limited

Lord Justice Snowden:

1. This appeal raises an important point about the reliance which can be placed upon the
entries in the register of members of a company when determining the validity of a
written resolution appointing voluntary liquidators to that company.

2. The resolution in question was signed by the person who was shown as the holder of
all the issued shares in the company in the register of members at the time. However,
one half of those shares had been registered in her name following her unauthorised
execution of a stock transfer form in the name of the Appellant, who was the person
previously shown on the register of members as the holder of those shares.

3. HHJ Hodge KC (the “Judge”) held that, even on the footing that the stock transfer
form was a forgery, the register of members was conclusive as to the identity of the
members of the company at any particular point in time, so that the written resolution
was valid and effective.

4. That decision is challenged on appeal by the Appellant. She contends that the transfer
of her shares, the entry on the register and the resolution for winding up and the
appointment of the liquidators were all void and of no effect.

5. The appeal is resisted by the Respondents who were appointed as liquidators by the
resolution, and who incurred significant fees and expenses winding up the company
before the liquidation was stayed whilst the validity of their appointment was
resolved.

Background

6. As might be appreciated from the short summary above, the facts of this case are
unusual. The course of these proceedings was also unusual. The background was set
out at some length in the Judge’s ex tempore judgment: [2023] EWHC 2805 (Ch) (the
“Judgment”). For present purposes it can be more shortly stated.

7. JDK Construction Limited (the “Company”) was incorporated in 2013 with a share
capital of 100 ordinary shares of £1 each. The sole subscriber to the Company’s
memorandum, and the holder of all the issued shares was the Appellant, Jeanette
Keegan (“Jeanette”), who was also the sole director of the Company.

8. In reality, the business of the Company was controlled and managed by Jeanette’s
son, Darren Keegan (“Darren”). Darren had married Julie Keegan (“Julie”) in 2012,
and in October 2015 Julie became a second director and acquired 50 ordinary shares
in the Company by transfer from Jeanette. That transfer and appointment were
reflected in electronic filings made at Companies House.

9. The personal relationship between Jeanette on the one hand, and Darren and Julie on
the other, broke down in early 2019. On 20 April 2019 Julie executed a stock transfer
form purporting to transfer the remaining 50 ordinary shares held by Jeanette to
herself (the “Stock Transfer Form”). She did so by signing “J. Keegan” in the box on
the form indicated as being for the signature of the transferor. Electronic filings
reflecting a transfer of Jeanette’s shares to Julie and the termination of Jeanette’s

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appointment as a director of the Company were made at Companies House on or

about 1 May 2019.

10. Jeanette and her son were reconciled in about March 2021, by which time Darren’s
marriage to Julie had broken down. The couple subsequently separated and divorce
proceedings were commenced.

11. On 16 July 2021, purporting to act as sole member of the Company, Julie signed a
written resolution of the Company (the “Written Resolution”). That resolution
resolved (1) by special resolution that the Company be wound up voluntarily, and (2)
by ordinary resolution that the Respondents be appointed joint liquidators. For
convenience, whilst recognising that their status is in dispute, I shall refer in this
judgment to the Respondents as the “Liquidators”.

12. 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. Correspondence ensued between
Jeanette’s solicitors, the Liquidators and Julie.

13. There was then a delay before the Liquidators issued an application under the
Insolvency Act 1986 (the “Insolvency Act”) over a year later on 6 October 2022,
seeking a declaration that their appointment as liquidators of the Company was valid
and/or for further directions (the “IA Application”). The respondents to that
application were Jeanette and the Company.

14. In their evidence in support, the Liquidators explained that they had not managed to
locate a physical register of members of the Company. They relied instead on the
electronic filings at Companies House as to the members of the Company from time
to time to contend that the Written Resolution and their appointment were valid. In
response to the application, Jeanette and Darren each filed witness statements denying
that they had signed the Stock Transfer Form. In her statement, Jeanette contended
that the Stock Transfer Form had been forged by Julie, with the result that the Written
Resolution for the winding up of the Company and the appointment of the Liquidators
was invalid.

15. The IA Application came before the Judge on 28 October 2022. On that date,
Jeanette’s counsel told the Judge that she intended to issue a claim for rectification of
the Company’s register of members. The Judge then adjourned the IA Application,
ordered it to be re-listed for consideration by the trial judge after delivery of judgment
in the intended rectification claim, and stayed the liquidation of the Company in the
meantime.

16. On 14 November 2022, Jeanette duly issued a Part 7 claim form against Julie and the
Company (the “Part 7 Claim”). The Part 7 Claim sought a declaration that the Stock
Transfer Form was a forgery and void, a declaration that Jeanette’s name had been
removed from the Company’s register of members without cause and that Jeanette
held 50 of the 100 issued ordinary shares in the Company, and an order pursuant to
section 125(1) of the Companies Act 2006 (the “Companies Act”) rectifying the
register of members accordingly.

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17. Jeanette’s Particulars of Claim stated that she had not joined the Liquidators or sought
any declaratory relief in respect of their appointment in the Part 7 Claim because she
intended to ask the Court to make a declaration as to the invalidity of the Written
Resolution in the IA Application.

18. In the Defence, which was signed with a statement of truth, Julie addressed the
allegation that she had forged Jeanette’s name on the Stock Transfer Form. Paragraph
12(d) stated,

“It is admitted that [Julie] signed the [Stock Transfer Form],

but it is denied that she did so with the intention of forging, or
purporting to forge, the signature of [Jeanette], or of any other
person. [Julie] intended to sign, and did as a matter of fact sign,
the [Stock Transfer Form] in her own capacity, i.e. as herself.
The circumstances in which she did so were that Darren placed
the [Stock Transfer Form] in front of her, and aggressively
demanded that she sign it, raising his voice in the process.
Darren informed [Julie], when placing the [Stock Transfer
Form] before her, that it was an “internal” Company document
that she was required to sign in order to resolve a dispute that
had arisen between himself and [Jeanette] in respect of tax on
dividends. [Julie] signed the [Stock Transfer Form] on that
basis, i.e. that (i) she was aggressively told to do so by Darren,
(ii) did not properly consider its contents, and believed Darren
when he told her it was an internal document that she was
required to sign in order to end a disagreement between Darren
and [Jeanette] and (iii) she did not intend to forge, and did not
forge, the signature of [Jeanette].”

19. On 2 June 2023, the Part 7 Claim was stayed on the terms of an agreement between
Jeanette, Darren and Julie and which was set out in a Schedule to an order (the
“Tomlin Order”) made by a District Judge. That Schedule included the following
terms,

“1. [Julie] acknowledges that she does not own the 50

shares in the [Company] purportedly transferred to her on 20
April 2019 from [Jeanette].

2. Julie will transfer the 50 shares that she does own to

[Jeanette] for the consideration of £1.00 within 2 working days
of receipt of a sealed copy of the [Tomlin Order].

4. Julie shall cause to appoint [Darren] as director of the

[Company] and immediately after Darren’s appointment resign
as director of the [Company] herself….

5. Darren agrees to indemnify Julie against all and any

claims made against her by the [Company] in relation to any
matter arising on or before the date of this Agreement …

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6. Darren shall pay the contribution of £8,000 plus VAT

to Julie in respect of costs of this action on an ex-gratia basis
and without any admission of liability.

8. This Agreement is in full and final settlement of, and

each of Darren and Julie hereby releases and forever
discharges, all and/or any actions, claims, rights, demands and
set-offs, whether in this jurisdiction or any other, whether or
not presently known to the parties or to the law, and whether in
law or equity, that it ever had, may have or hereafter can, shall
or may have against the other party arising out of or connected
with [the Company] …”

20. It will be appreciated that the agreement attached to the Tomlin Order had a number
of oddities. Specifically, clause 1 did not indicate what was intended to happen in
relation to the entries on the register of members in respect of the shares that had been
the subject of the Stock Transfer Form. Another unexplained feature of the agreement
was that, unless the resolution for winding up was set aside, the transfer of shares
provided by clause 2 would be void unless sanctioned by the Liquidators or the Court:
see section 88 of the Insolvency Act. The Liquidators had not, however, been
involved in the negotiations leading to the Tomlin Order and were not asked to
consent to it or to the terms of the agreement set out in the Schedule, either in their
own capacity or on behalf of the Company.

21. Upon learning of the settlement of the Part 7 Claim, the Liquidators applied to restore
the IA Application. That matter came before the Judge on Friday 13 October 2023.

The Judgment

22. In his Judgment, the Judge first indicated, at [10]-[11], that in the absence of any copy
of the Company’s register of members in evidence, he would proceed upon the
footing that the Company’s accountants, who had made the various electronic filings
at Companies House, had also made corresponding entries in the register of members.
He thus concluded that the register of members would have shown that Julie was the
sole holder of all 100 ordinary shares in the Company at the time of the Written
Resolution.

23. After setting out the background that I have summarised above, the Judge stated, at
[30]-[32],

“30. Mr. Fennell [for Jeanette] has invited the court finally
to determine all outstanding matters today. He submits that
nothing is to be gained by any further investigation of the
evidence. There has been no application for cross-examination
of either Darren or Jeanette. There is no evidence before the
court from Julie, beyond the defence to the rectification claim,
which she has verified by a statement of truth.

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31. Mr. Fennell submits that nothing is to be gained by any

further investigation of the evidence. There has been no
suggestion that Jeanette in any way authorised the forging of
her signature on the [Stock Transfer Form], or that she has in
some way acquiesced in that transfer, or is estopped from
denying [sic] that it is a forgery. I accept that submission. I can
see that no valid purpose is to be served by any attempt at any
further investigation of the facts of this case.

32. Mr. Cochran [for the Liquidators] began by

emphasising that the [Liquidators] have been placed in an
invidious position. As innocent liquidators, they find
themselves caught in the middle of what has been an unsavoury
shareholders’ dispute between Julie, on the one hand, and
Jeanette and Darren, on the other. He emphasises that this
[Company] has at all times been a creature of Darren, and that
it is he who stands to gain from removing the [Liquidators]
from office, because it is he who is in de facto control of the
[Company]. Mr. Cochran submits that the limited evidence
before the court suggests that it is Darren who was the person
who effectively orchestrated the production and use of the
share transfer form, although he has now decided that it is in
his own best interests to deny its validity and effect. Mr.
Cochran emphasises, rightly, that there is no court finding that
there has been any forgery.”

24. After summarising the respective arguments of the parties, the Judge then identified
the issue which he had to decide, as he saw it, at [48],

“48. As it seems to me, the real issue in the present case is

therefore whether, even on the footing that the share transfer
form was a forgery, Jeanette should have been treated as a
member of the [Company] for the purposes of the requirement
to participate in the special resolution to place the [Company]
into voluntary winding-up. It therefore seems to me that the
real issue in the present case becomes one as to Jeanette’s
continuing status as a member when, on the evidence based on
the filings at Companies House, her name did not, at that time,
appear on the [Company’s] register of members.”

25. I agree that this was the correct issue that the Judge had to decide, but for the purposes
of analysis, it is worth unpacking the reasons why this was so.

26. The issue raised by the IA Application was whether the appointment of the
Liquidators was valid or not. That depended on whether the Written Resolution that
the Company should be wound up voluntarily was valid and effective as a special
resolution of the Company (as required by section 84(1)(b) of the Insolvency Act);
and whether the resolution that the Liquidators should be appointed was also valid
and effective as an ordinary resolution of the Company (in accordance with section
100(1) of the Insolvency Act).

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27. The requirements for resolutions and written resolutions of a company are set out in
Part 13 of the Companies Act. Section 281(1)(a) of the Companies Act provides that
a resolution of the members of a company may be passed as a written resolution in
accordance with Chapter 2 of Part 13. Section 282 provides that a written resolution
is passed as an ordinary resolution if it is passed by members representing a simple
majority of the total voting rights of “eligible members”; and section 283 provides
that a written resolution is passed as a special resolution if it is passed by a majority of
not less than 75% of the total voting rights of “eligible members”. Sections 289 and
290 provide that “eligible members” are the members of a company who would have
been entitled to vote on the resolution on the date on which the written resolution was
sent to members for their agreement.

28. The issue in the instant case was thus whether, for the purposes of Part 13 of the
Companies Act, when the Written Resolution was signed by Julie on 16 July 2021,
Jeanette was an eligible member of the Company. If Jeanette was an eligible member,
then the first part of the Written Resolution putting the Company into voluntary
winding up was not signed by members holding at least 75% of the total voting rights
of eligible members of the Company, and was thus invalid as a special resolution; and
the second part appointing the Liquidators was also invalid as an ordinary resolution,
because it was not signed by a simple majority (i.e. more than 50%) of the eligible
members of the Company. Conversely, if Jeanette was not an eligible member of the
Company at the relevant time, then Julie’s signature was alone effective to make both
parts of the Written Resolution valid.

29. Returning to the Judgment, the Judge gave his answer to the question that he had
identified at [49]-[50],

“49. Notwithstanding the provisions of section 127 of the

Companies Act, it does seem to me that the register is
conclusive as to those who were members of the [Company] at
the time of the special resolution. Section 112(2) is, in my
judgment, clear that every person whose name is entered in the
[Company’s] register of members is a member of the
[Company]. That is reinforced by the power under section 125
that is conferred upon the court to rectify the register.

50. When one looks at the scheme of the Companies Act

as a whole, it seems to me that the register is conclusive as to
those who are members of the [Company] at any particular
point in time. On that basis, even if the register of members
were liable to be rectified, following a decision that the share
transfer form was a forgery and of no effect, since Jeanette’s
name was not on the register at the time of the passing of the
special resolution to wind-up the [Company], it seems to me
that the [Company] was validly placed into voluntary winding-
up.”

The Judge therefore declared that the Liquidators’ appointment was valid.

The arguments on appeal

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30. In support of Jeanette’s appeal, Mr. Fennell contended that the Judge was wrong to
hold that the register of members is conclusive as to the identity of the members of a
company. He submitted that it was clear from section 127(1) of the Companies Act
that the register of members is only prima facie evidence of the matters required to be
entered on it – which by section 113(3)(a) of the Act include “a statement of the
shares held by each member”.

31. In the instant case, Mr. Fennell submitted that such prima facie evidence of the
membership of the Company was rebutted by the Judge’s own assumption at [48], for
the purposes of his analysis, that the Stock Transfer Form was a forgery. For good
measure he contended that Julie’s account in her Defence to the Part 7 Claim plainly
indicated that she had executed the Stock Transfer Form without any authority from
Jeanette. Mr. Fennell contended that this meant that the Stock Transfer Form was a
nullity and that it was ineffective to transfer any right or entitlement to the 50
subscriber shares in the Company from Jeanette to Julie. He further contended that
the Company was not entitled to act upon the Stock Transfer Form to register the
transfer of such shares from Julie to Jeanette, so that Jeanette had not ceased to be a
member of the Company in respect of her 50 subscriber shares.

32. Mr. Fennell submitted that this meant that the Written Resolution was invalid and
ineffective as a special resolution to wind up the Company voluntarily under section
84(1)(b) of the Insolvency Act or as an ordinary resolution to appoint the Liquidators
in accordance with section 100(1) of the Insolvency Act.

33. Mr. Fennell submitted that this outcome was in accordance with policy and good
sense. He contended that the decision of the Judge opened the door to a fraudster
obtaining control of a company by the simple expedient of forging a stock transfer
form or making unauthorised alterations to the register of members, and thereafter
using his status as a member to pass valid resolutions, e.g. putting the company into
liquidation or assuming control of the board and misappropriating its assets, to the
detriment of the true owners of the company and others interested in it, such as
employees and creditors. He suggested that it would be wrong for mere entries on the
register of members to have such far-reaching consequences; and that in any
competition between two innocent parties, the loss should fall on those whose status
was acquired through use of the void document.

34. In response, Mr. Doyle KC essentially contended that the Judge was right for the
reasons that he gave. He submitted that section 112 of the Companies Act defines
who the members of a company are, and that the Judge correctly identified that the
scheme of the Companies Act is that the register of members maintained under
section 113 is a conclusive statement as to the membership of the company at any
point in time.

35. Mr. Doyle KC suggested that any other regime would be unworkable because it
would mean that a company, its directors or third parties (such as an insolvency
office-holder) would be unable to rely upon the register of members as an accurate
statement of the membership when, for example, convening general meetings of the
company or acting on the basis of resolutions passed at such meetings. He submitted
that if a person contends that the register of members of a company is inaccurate, they
have a remedy by way of an order for rectification of the register pursuant to section

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125 of the Companies Act, but unless and until such an order is made, the register is
conclusive.

36. Hence, Mr. Doyle KC submitted, the Judge was right to hold that, even on the basis
that the Stock Transfer Form had been a forgery, Jeanette was not a member of the
Company at the time of the Written Resolution because she did not appear as such on
the register of members, so the resolutions contained in the Written Resolution had
been validly passed by Julie as the sole member of the Company.

37. Mr. Doyle KC further emphasised (in case it was necessary for him to do so) that the
principle that “fraud unravels all” had no application in the instant case because there
had been no judicial finding that Julie had forged the Stock Transfer Form. He
submitted that a finding of fraud or dishonesty was essential to a finding of forgery
and he pointed out that Julie had denied in her Defence to the Part 7 Claim that she
had forged the document, and that the Judge hearing the IA Proceedings had accepted
Mr. Fennell’s argument that it was unnecessary to investigate such matters further.

Assumptions

38. In common with the Judge, and in the absence of any objection from the parties, I
shall approach the legal analysis on the assumption that the Company’s accountants
made appropriate entries on the Company’s register of members, reflecting the
electronic returns made to Companies House from time to time.

39. I shall also assume, for the purposes of my analysis, that the Stock Transfer Form was
executed by Julie by forging Jeanette’s signature on it. However, I should say at once
that, for the reasons that follow, I do not think that it matters for the outcome of this
case whether the Stock Transfer Form was forged (which is disputed), or simply
executed by Julie without any authority from Jeanette (which is not disputed).

Analysis

40. I agree with Mr. Doyle KC that the starting point in defining the concept of a member
is section 112 of the Companies Act. That provides, in relevant part,

“112. The members of a company

(1) The subscribers of a company’s memorandum are

deemed to have agreed to become members of the company,
and on its registration become members and must be entered as
such in its register of members.

(2) Every other person who agrees to become a member of

a company, and whose name is entered in its register of
members, is a member of the company.”

41. The requirement of a company to maintain a register of members is set out in section
113,

“113. Register of members

(1) Every company must keep a register of its members.

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(2) There must be entered in the register–

(a) the names and addresses of the members,

(b) the date on which each person was registered as a

member, and

(c) the date at which any person ceased to be a

member.

(3) In the case of a company having a share capital, there

must be entered in the register, with the names and addresses of
the members, a statement of–

(a) the shares held by each member, distinguishing

each share -

(i) by its number (so long as the share has a number),

and

(ii) where the company has more than one class of

issued shares, by its class, and

(b) the amount paid or agreed to be considered as paid

on the shares of each member.”

42. On a straightforward reading of section 112, it is apparent that a person may be a

member of a company either as a result of subscribing to its memorandum (section
112(1)), or (if they are not a subscriber) by agreeing to become a member and being
entered as a member on the register of members (section 112(2)).

43. The meaning and effect of section 112 was considered by the Supreme Court in
Enviroco Limited v Farstad Supply A/S [2011] UKSC 16, [2011] 1 WLR 921
(“Enviroco v Farstad”). Surprisingly, this authority was not cited by either party to
the Judge or to us, but we requested, and received, written submissions from the
parties on it.

44. The case concerned the extent of an indemnity in a charterparty that used the
expression “affiliate”, which in turn incorporated the definition of “subsidiary” in
what is now section 1159 of the Companies Act. So far as relevant, that provision
provides,

“(1) A company is a “subsidiary” of another company, its

“holding company”, if that other company –

(c) is a member of it and controls alone, pursuant to an

agreement with other members, a majority of the
voting rights in it.”

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The question was whether a company (Enviroco) remained the subsidiary of another
(ASCO) in circumstances in which ASCO had pledged its shares in Enviroco by way
of security to a bank by a method which involved registration of the shares in the
name of a nominee for the bank on Enviroco’s register of members.

45. The Supreme Court held that Enviroco had not remained a subsidiary of ASCO
because ASCO did not appear as a member in Enviroco’s register of members and so
what is now section 1159(1)(c) was not satisfied. In giving the leading judgment,
with which the other members of the Supreme Court agreed, Lord Collins stated, at
[37]-[39],

“37. The starting point is that the definition of “member” in

what is now section 112 of the [Companies Act 2006] …
reflects a fundamental principle of United Kingdom company
law, namely that, except where express provision is made to the
contrary, the person on the register of the members is the
member to the exclusion of any other person, unless and until
the register is rectified: in re Sussex Brick Co [1904] 1 Ch 598
(retrospective rectification of register did not invalidate
notices).

38. Ever since the Companies Clauses Consolidation Act

1845 (8 & 9 Vict c 16) and the Companies Act 1862 (25 & 26
Vict c 89) membership has been determined by entry on the
register of members. The companies legislation proceeds on
that basis and would be unworkable if that were not so. Among
the many provisions relating to members are these: (1) a
member will be bound by alterations in the company’s articles,
subject to specified exceptions (section 25 of the 2006 Act); (2)
there are elaborate provisions relating to the register of
members (sections 113 et seq.), including a duty to keep an
index of members (section 115) and rights to inspect and
require copies (sections 116–121), and documents in hard copy
form must be sent to a member at his address as shown in the
register of members (Schedule 5, Part 2); (3) a subsidiary
cannot be a member of its holding company (section 136); (4)
elaborate provision is made for voting by members, by proxies
appointed by members, and by joint holders (sections 281 et
seq.); (5) the company must send its annual accounts and report
to every member (section 423); (6) unlawful distributions may
be recovered from a member who knows or has reasonable
grounds for believing that it is unlawfully made: section
847(2).

39. For those and other purposes the legislation makes it

clear that the member is the person on the register, and where it
is necessary to apply the legislation to persons who are not on
the register, special provision is made. Thus where the shares
are bearer shares, special provision is made to allow the bearer
to be deemed to be a member: section 122(3). So also the right

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of a member to bring a derivative claim or present an unfair

prejudice petition is expressly extended “to a person who is not
a member of a company but to whom shares in the company
have been transferred or transmitted by operation of law”:
sections 260(5) and 994(2).”

46. Lord Collins’ explanation at [37] of the “fundamental principle of United Kingdom
company law” that “except where express provision is made to the contrary, the
person on the register of the members is the member to the exclusion of any other
person, unless and until the register is rectified”, coupled with his observations at [38]
that the provisions of the Companies Act (including those as regards voting by
members) would be unworkable were that not so, clearly support the reasoning of the
Judge at [49]-[50].

47. However, Lord Collins did not go as far as the Judge. Lord Collins did not say that the
register of members was conclusive as to the identity of the members of a company.
He acknowledged that the general principle that the identity of the members of a
company is to be determined by reference to the entries on the register of members at
the relevant time is subject to “express provision ... to the contrary”.

48. One obvious example of an express provision to the contrary is to be found in section
112(1) in relation to the subscribers to a company’s memorandum of association. The
wording of section 112(1) makes it clear that a subscriber will be a member of the
company as and from incorporation, irrespective of whether they are subsequently
entered on the register of members. That was explained in paragraph 239 of the
Explanatory Notes to the Companies Act, which stated,

“239. This section restates section 22 of the [Companies Act

1985]. There are additional words to make it clear that the
subscribers to the memorandum become members on
registration of the company, even if the company fails to enter
their names in the register of members.”

49. It can therefore be seen that section 112(1) establishes a regime under which the
subscribers will become members without being entered on the register. This is
primarily to deal with the fact that there will inevitably be a gap in time between
formation of a company and completion of its register, and also to deal with
possibility that those in control might fail to make the necessary entries on the register
of members. However, if the subscribers to a company’s memorandum are duly
entered on the register of members in accordance with section 112(1), there is nothing
in any other provision of the Companies Act to suggest that their continued status
thereafter, or the manner in which they might transfer their shares or cease to be
members, should differ in any way from the regime that applies to members who
acquire their shares after the formation of the company.

50. A second example of an express provision to the contrary which indicates that the
entries on the register of members are not conclusive is to be found in section 112(2).
As indicated above, for a person who is not a subscriber to become a member of a
company, there are two requirements – (i) agreement to become a member and (ii)
entry on the register. The agreement to become a member does not require a formal
bilateral contract but simply unilateral assent: see Nuneaton Borough AFC Limited

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[1989] BCLC 454. But if there is no such assent, then mere entry of a person’s name
on the register will not suffice to make that person a member: see Oakes v Turquand
(1867) LR 2 HL 325.

51. Both these examples illustrate why, as section 127 of the Companies Act expressly
provides, and as Mr. Fennell submitted, the register can only ever be prima facie
evidence as to who the members of the company are. But neither example concerns a
situation in which a person whose name has been properly entered on the register of
members is removed from the register without her consent.

52. I also accept Mr. Fennell’s submission that because Enviroco v Farstad concerned the
operation of the Companies Act in a conventional business transaction, and was not a
case of wrongful removal of a person from the register, it is not a binding authority on
the question of whether the removal of a member’s name from the register of
members as the result of forgery or fraud operates as a further exception to the general
principle outlined by Lord Collins.

53. In that latter regard, Mr. Fennell argued that the deletion of Jeanette from the
Company’s register of members should be regarded as a nullity, and that she should
be regarded as still on the register for voting purposes because the Stock Transfer
Form upon which such deletion was based was a forgery, and would have been
known to be a forgery by Julie who authorised such deletion as sole director of the
Company. Mr. Fennell relied upon Ruben v Great Fingall Consolidated [1906] AC
439 (“Ruben”) in that regard.

54. In Ruben, the secretary of a company asked his stockbrokers to arrange a personal
loan for him from a bank, which was to be secured on 5,000 shares in the company.
The secretary forged a stock transfer form for 5,000 shares in favour of nominees for
the bank and thereafter also caused a forged share certificate to be issued to the bank’s
nominees. When the secretary did not repay the loan and absconded, the company
refused to register the bank as holder of the shares represented by the forged
certificate. The stockbrokers then repaid the bank, took an assignment of the bank’s
rights against the company, and sued the company for damages, either for refusing to
register it as a shareholder or on the basis that the company was vicariously liable for
the fraud of the secretary.

55. The trial judge held the company liable, but that decision was reversed by the Court of
Appeal, whose decision was affirmed by the House of Lords. The reason was shortly
stated by Lord Loreburn LC at 443,

“I cannot see upon what principle your Lordships can hold that
the defendants are liable in this action. The forged certificate is
a pure nullity. It is quite true that persons dealing with limited
liability companies are not bound to inquire into their indoor
management, and will not be affected by irregularities of which
they had no notice. But this doctrine, which is well established,
applies only to irregularities that otherwise might affect a
genuine transaction. It cannot apply to a forgery.

Another ground was pressed upon us, namely, that this

certificate was delivered by [the secretary] in the course of his

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employment, and that delivery imported a representation or

warranty that the certificate was genuine. He had not, nor was
held out as having, authority to make any such representation
or to give any such warranty. And certainly no such authority
arises from the simple fact that he held the office of secretary
and was a proper person to deliver certificates.”

56. The ratio of Ruben was very simply that the company could not be made liable for a
refusal to register the bank’s nominees as the holders of shares, because the forged
share certificate was a nullity and had not been issued with the authority of the
company. The House of Lords held that the company had rightly refused to act on the
basis of forged documents and the third party could not rely upon the “indoor
management” rule to bind the company. Ruben did not, however, involve the
wrongful removal of anyone from the register of members on the basis of a forged
document. I therefore do not see that it can have any relevance to the instant case
beyond the uncontroversial proposition that a forged document is a nullity.
Specifically, Ruben does not assist in analysing, for the purposes of voting on
members’ resolutions, the status of a person whose name is wrongly removed from a
company’s register of members as a result of a forged stock transfer.

57. Apart from relying upon Ruben and other cases that have followed it in similar
circumstances such as South London Greyhound Racecourses v Wake [1931] Ch 496,
Mr. Fennell did not cite any authority to us in support of the proposition that a person
whose name is wrongly removed from the register of members as a consequence of a
forged transfer still retains the status of a member for voting purposes.

58. In my judgment, in the absence of such authority, the general principle explained by
Lord Collins in Enviroco at [37] should apply for the purposes of determining the
validity of members’ resolutions, even in a case where a member’s name has been
wrongly removed from the register as a result of forgery or fraud. The law does not
simply disregard the entries on the register. Instead, the entries on the register of
members are presumptively valid and the members of a company are taken to be those
shown on the register “unless and until the register is rectified”.

59. A company cannot simply alter its register of members to remove the name of a
registered holder of shares without a court order: re Derham and Allen [1946] Ch 31
at 36. Accordingly, as occurred in the instant case, it is necessary for a person who
contends that their name has wrongly been taken off the register to apply to the court
for an order that the register be rectified, putting them back onto the register in place
of the person whose name wrongly appears on the register. The application to the
court can be made under section 125 of the Companies Act (which provides a
summary jurisdiction for simple cases) or in an ordinary CPR Part 7 claim (for other
cases): see Nilon v Royal Westminster Investments SA [2015] UKPC 2 at [37].

60. A clear example of rectification by the court in a case of forgery is re Bahia and San
Francisco Railway Company Limited (1868) LR 3 QB 584 (“Bahia”). In that case, T,
the registered holder of shares, had left the share certificates in the hands of her
broker. The broker forged T’s signature on a stock transfer form in favour of S and
G. That was submitted for registration to the company and new share certificates
were issued to S and G. S and G then sold the shares on to B and C who were
registered as members of the company.

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61. When the forgery was discovered, T obtained an order for rectification of the register
under section 35 of the Companies Act 1862 (the predecessor of what is now section
125 of the Companies Act), putting her back onto the register in place of B and C.
There was no suggestion that the court should simply have declared the entries on the
register to be of no legal effect.

62. The court in Bahia then also made two orders dealing with matters consequential
upon the rectification of the register. The first was to order the company to pay T any
dividends that had fallen due on the shares during the time she had wrongly been off
the register. The second, following the statement of a special case in the application
for rectification, was to order the company to pay compensation to B and C for the
loss of the shares, calculated as at the date upon which they had been displaced from
the register by T, together with interest.

63. That approach is also consistent with the approach taken in International Credit and
Investment (Overseas) Ltd v Adham [1994] 1 BCLC 66 (“Adham”). In that case, a
member had simply been taken off the register and other persons had been inserted in
dubious circumstances, and without any transfer documentation at all (in clear
contravention of what is now section 770 of the Companies Act). The court did not,
however, simply disregard the entries on the register. Instead, it declared that the
persons who appeared on the register held the shares as bare trustees for the person
whose name had been wrongly removed, and ordered the register to be rectified by
the deletion of the names that wrongly appeared on the register and the reinstatement
of the original member.

64. In addition to making consequential orders to deal with events that have occurred
whilst the register of members was in an incorrect state, the court also has the power
to order that the register be rectified with retrospective effect. That is well illustrated
by the case of re Sussex Brick Co Limited [1904] 1 Ch 598 (“Sussex Brick”) to which
Lord Collins referred in Enviroco v Farstad.

65. In Sussex Brick, two joint transferees of shares sent their transfer to the company for
registration in the usual way, but by mistake or oversight the company failed to
register the transfer or enter them on its register of members. Subsequently the
company passed a special resolution for a voluntary winding-up with a view to
reconstruction, whereupon the transferees served the liquidator with notice of dissent
under section 161 of the Companies Act 1862. That section provided that, upon
receipt of such a notice from a person who was a member of the company at the time
of the special resolution, the liquidator either had to abstain from carrying out the
proposed reconstruction or purchase the dissentient member’s interest.

66. The liquidator ignored the transferees’ notice under section 161 on the ground that,
because they had not been entered on the register of members, they were not members
of the company within the meaning of section 161 at the time of the resolution to
wind up the company. The transferees therefore applied to the court for rectification
of the register of members with retrospective effect so as to place them onto the
register with effect from the day before the resolution for voluntary winding up was
passed. The judge at first instance made an order for rectification placing the
transferees on the register of members, but refused to do so with retrospective effect.

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67. The Court of Appeal allowed the transferees’ appeal and ordered that they be placed
on the register with retrospective effect dating back to the day before the passing of
the special resolution that the company be wound up, so that their notice of dissent
under section 161 would be valid. Vaughan Williams LJ stated, at page 605,

“Now, in this case there can be no doubt but that the names of
these gentlemen ought to have been on the register at a date
earlier than the time of the holding of the meetings in relation
to the reconstruction of this company. Under those
circumstances, when one looks at re Joint Stock Discount
Company (1866) LR 3 Eq 77 (“Nation’s Case”), which was a
decision by Lord Romilly MR, there can be no doubt that that
is an authority for the proposition that when it is right that an
order for rectification should be made - whether the order be
for rectification by taking a name off the register or by putting a
name on - the Court may make an order, not only that the right
name shall be put on or taken off, as the case may be, but that
the register shall be treated as if the name had been on or off at
the time it ought in fact to have been on or off.”

68. After rejecting an argument that such an order could not be made after liquidation
under the particular section of the 1862 Act upon which the transferees had relied,
Vaughan Williams LJ continued, at page 606-7,

“I have only to add this, that I do not mean for a moment to

suggest that any one is entitled to such an order ex debito
justitiæ; it is a matter in the discretion of the judge, and there
might be cases in which the judge, although he considered such
an order essential to completely establishing the rights of the
applicant, might refuse to do so because he thought it would
work injustice to other members of the company. If I thought
here that such an order would work injustice to other persons,
especially to persons who are not in any way bound by the
mistake of the company, I should feel considerable hesitation in
making the order; but in the present case there is no evidence
before us that any injustice will be caused at all. It has been
suggested that if we make the order asked for we shall
invalidate the resolutions, because the meetings will not have
been properly called; and other suggestions of a similar kind
were made in the course of the argument. As the matter stands,
we can do justice and prevent any wrong accruing to these two
gentlemen … without doing any injustice to anyone else.”

69. Stirling and Cozens-Hardy LJJ gave concurring judgments. At pages 608-609 Stirling
LJ stated,

“[Nation’s Case] is, therefore, an authority that in a proper case

the Court has power to fix a date as from which the change in
the register is to be made operative. But then after that there
arises a point which requires serious consideration. The
application of the appellants here is, in substance, that the

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registration be made nunc pro tunc. Now, when an order of that

sort is made the Court ought to be very careful to see that it
does no injustice by making the registration retrospective. I
may point out that the power which is conferred by section 35
[of the Companies Act 1862] is not imperative. All it says is
that the Court “may” in a proper case make an order for
rectification. Therefore the Court has full discretion to deal
with every particular case which comes before it in such a way
as may do complete justice; but in the present case I fail to see
that any injustice can be done if the alteration is made as
asked.”

70. Vaughan Williams LJ’s rejection of the argument that the making of an order for
retrospective rectification of the register would invalidate the special resolution for
winding up was a reference back to an exchange that took place during argument.
That exchange was reported at pages 603-604,

“(Gore-Browne KC for the liquidators) In the present case, if

the argument of the appellants … is right, and they were in
truth members of the company before the meetings in question,
it follows that they ought to have had notice of the meetings,
and it may be that as they had no notice the meetings were
badly held, the resolutions passed are void, and there is no
liquidation at all.

(Vaughan Williams LJ) It is not suggested that, in remedying

the injury done to these appellants by the unnecessary delay in
the registration of their transfers, injury should be done to other
people, such as by holding the meetings to be bad. The only
question is whether these shareholders who expressed their
dissent from the resolutions are, for the purposes of that dissent,
to be treated as having had their names on the register before
the meetings, or at all events before the confirmatory meeting. I
cannot conceive why they should not. That would not affect the
validity of the meetings or the validity of any proceedings
under them in the slightest degree. In Nation’s Case no one
suggested that the order there made would have the effect of
making any resolution or any subsequent proceedings bad.”

71. As I see it, the power of the court to make consequential orders dealing with events
that have occurred whilst the register was not in the correct state (Bahia), coupled
with the power to order rectification with retrospective effect (Sussex Brick), provide
the answer to Mr. Fennell’s contention that to treat the entries on the register as
determinative of the membership of a company for voting purposes would open the
door to fraudsters and forgers. In short, the court has the power when making an
order for rectification of the register of members, so far as legally possible, to undo
the effects of such misconduct, to order compensation to be paid, or to determine how
losses should be fairly allocated between innocent parties.

72. It is also clear from Sussex Brick that the issue of whether rectification should be
ordered with retrospective effect is a matter of discretion for the court. It follows that

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if retrospective rectification might arguably invalidate any subsequent meetings or

resolutions of the members, and thereby cause prejudice to other members or third
parties who have acted in reliance on the resolutions, the court has a discretion not to
order retrospective rectification at all, or only to order it on terms. On the facts of
Sussex Brick, the members of the Court of Appeal considered that the resolutions for
winding up would remain valid and effective, even if an order for retrospective
rectification of the register was made for the purpose of validating the appellants’
notice of dissent under section 161 of the Companies Act 1862.

The result in the instant case

73. Applying these principles to the instant case, it seems to me that unless and until an
order for rectification was made, the identity of the members of the Company for the
purposes of determining the validity of the Written Resolution was to be determined
by the entries in the Company’s register of members at the relevant time.

74. When the Judge made his order staying the winding up of the Company on 28
October 2022 it was envisaged that the IA Application should be restored before the
trial judge hearing the Part 7 Claim for rectification of the register. In accordance
with the decision in Sussex Brick, this would have enabled the trial judge to consider
the appropriate orders to make. The trial judge could have considered whether the
Company’s register of members should be rectified so as to put Jeanette’s name back
onto the register with retrospective effect in light of any effect that might have had
upon the Written Resolution and/or whether any ancillary orders should be made to
achieve justice as between the parties and the Liquidators.

75. However, for reasons that were not explained to us, that course was not followed.
Instead, Jeanette, Darren and Julie chose to compromise the Part 7 Claim upon the
terms of the agreement between them that was annexed to the Tomlin Order.
Surprisingly, given that the Part 7 Claim was a claim for rectification of the register of
members, that agreement did not address the status of the relevant entries on the
Company’s register of members at all. It did not, for example, contain any express
acknowledgment by Julie that she held the legal title to the shares that had been the
subject of the Stock Transfer Form on a bare trust for Jeanette (following the
approach in Adham). Nor did it provide for the court to be asked to make an order
rectifying the Company’s register of members in respect of those shares. And since
no such order was sought, the agreement did not provide any opportunity for the
Liquidators, who were not parties to the agreement, to address argument about
whether any such order ought to be made retrospectively or not, and if so, on what
terms.

76. 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 Julie 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.

77. I would therefore dismiss the appeal.

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Lady Justice Asplin:

78. I agree.

Lady Justice King:

79. I also agree.

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