By Joanne Turner

Solicitor

When dealing with transactions involving the sale of company shares, there is one question we ask clients which can often lead to a confused look, followed by slightly panicked enquiries of accountants and previous solicitors, and a trawl through boxes of old records.  The question is “where are the Company’s statutory registers?” and the answer is not always a simple one!

 

The Companies Act 2006 requires that a private limited company keeps, maintains and in some instances makes available for public inspection certain registers.  The requirement to maintain them (and in some cases even to keep them) is often overlooked in companies that do not use a company secretarial service and this can present an issue when a potential buyer is conducting its due diligence and the parties want a quick completion to the transaction.

 

The “statutory registers” (aka “company registers”, “statutory books / records”, “combined registers” or similar) are:

 

• Register of directors
• Register of directors’ residential addresses (not available for public inspection)
• Register of secretaries (if one is appointed)
• Register of members
• Register of charges (created before 6th April 2013)
• Register of debenture holders
• Register of Persons with Significant Control (“PSC”)

 

In addition, many companies will also have registers recording the issue and transfer of shares in its capital.  Whilst there is no legal obligation to maintain these “non-statutory” registers, it is considered best practice as the additional information is often useful.

 

If the company was incorporated by a formation agent, the registers are likely to have been provided as part of the package in the form of a hard-back book or a loose-leaf file.  However, this is the 21^st century and the registers can also be maintained electronically, provided they can be reproduced in hard copy format.

 

The requirement is that the registers are kept at a company’s registered office address or (except for the register of directors’ residential addresses) at a single alternative inspection location (“SAIL”), details of which must be registered with Companies House, together with confirmation of exactly which registers are available for inspection at the SAIL.

 

In these modern times, there is also an option for private limited companies to keep certain registers (members, PSC, secretaries, directors and directors’ residential addresses) on the public register at Companies House only.  This is called the Central Record and dispenses with the requirement to separately keep and maintain these registers.

 

Whilst often overlooked, the statutory registers are important for a number of reasons.  Failure to keep them is an offence by the company and every director, each of whom could face a fine of up to £5,000.  Also, the register of members is prima facie evidence of who the members of the company are and the number of shares they hold.  This information is vital when preparing for, and conducting, meetings and passing resolutions, particularly in companies with a large number of shareholders, or where shareholdings regularly change.  It will help ensure that all decisions taken comply with a company’s rules, thus avoiding a potential challenge later on as to whether a decision was properly passed.

 

Furthermore, and this is why we ask the difficult question, a potential buyer will want to ensure that a company’s statutory registers are not only up to date but have been kept and maintained correctly throughout its life and will expect a seller to give a warranty that that is indeed the case.  If not, the company could find itself subject to a court order for rectification from someone whose information is not correctly reflected in those statutory registers and the new directors subject to fines (as noted above).  The seller could then face a claim for breach of warranty and associated damages in respect of the cost to the company and the buyer.

 

If the statutory records either do not exist or are not up to date, it is possible to reconstitute them, but this should be done as soon as the issue is identified.  The longer that they have not been maintained, the more time consuming and costly a process reconstitution is likely to be as more changes will have occurred and more historical documents and Companies House filings will need to be consulted to complete the picture.  We are often called upon to deal with the reconstitution of statutory records only at the 11^th hour and this can add to the time pressure of a proposed sale transaction.

 

So, as with many things in life, when it comes to statutory registers the mantra “little and often” should be applied.  Keeping on top of the little changes that happen over time will help avoid the additional time and cost that is likely to be involved in trying to recreate years of history from scratch.