Eclairs Group Ltd & Anor v JKX Oil & Gas Plc & Ors

A company may use statutory disclosure notices to obtain wide-ranging information about interests in its shares, including arrangements concerning voting rights. Questions must be sufficiently clear, but the statutory scheme is construed broadly to penetrate complex ownership structures.

Restrictions imposed under an article based on the disclosure regime must be used for the purpose of compelling or incentivising disclosure. They cannot be used as a weapon to alter voting control, secure the passage of resolutions or defeat perceived corporate raiders, even where the directors genuinely believe that outcome would benefit the company. Directors must exercise the power for the purpose for which it was conferred.

JKX Oil & Gas plc imposed restrictions on shares beneficially held by Eclairs Group Ltd and Glengary Overseas Ltd after serving notices under Companies Act 2006, section 793, seeking information about beneficial ownership and agreements or arrangements concerning the shares.

The board believed that the responses were materially inaccurate and used article 42 of the company’s articles to prevent the shares being voted or transferred. The claimants challenged the validity of the notices and restrictions, alleging defects in the questions, lack of reasonable cause to believe that the responses were inaccurate, improper purpose, procedural unfairness, and lack of standing.

The central issues were whether the questions were authorised by section 793, whether the board had reasonable cause to believe that the responses were false or materially incorrect, and whether article 42 had been exercised for a proper purpose.

1. Validity of the disclosure questions. Section 793 of the Companies Act 2006 is intended to obtain information which the company does not possess, including information concealed through trusts and corporate structures. The word “include” in section 793(5) makes its examples non-exhaustive. Questions may seek particulars of arrangements relating to the addressee’s shares and voting rights, including arrangements involving third parties. The questions in the notices were capable of being valid questions when properly construed (paras [101]-[125]).
2. Reasonable cause to believe. “Reasonable cause to believe” requires more than reasonable cause to suspect, given the consequences for proprietary rights. The board could assess the responses against a mosaic of surrounding circumstances. It was not required to conduct a trial or a full inquiry, and the principles of natural justice did not require the addressees to be given a further opportunity to answer the board’s concerns before restrictions were imposed (paras [127]-[161]).
3. The board had reasonable cause to believe that arrangements existed between the relevant shareholder groups concerning their shares and voting, and that the responses failed to disclose them. The responses were therefore materially incorrect for article 42 purposes. The board did not need to know the precise terms of the arrangements before asking questions or acting on the responses (paras [162]-[179]).
4. Proper purpose. Article 42 restrictions were conferred to compel or incentivise the production of information. Section 172 of the Companies Act 2006 did not displace the separate requirement in section 171 that directors exercise powers only for their proper purposes. The statutory regime and article 42 did not authorise restrictions merely to protect the company from a raid, defeat a shareholder’s opposition, or secure the passage of resolutions (paras [201]-[212]).
5. The majority purpose of the voting directors was relevant. Although obtaining information was a genuine purpose, the majority also substantially intended to disenfranchise the claimants at the AGM and secure resolutions which their votes might otherwise defeat. That was an improper purpose. The restrictions were therefore set aside, notwithstanding the judge’s provisional view that the directors might have reached the same decision for proper reasons. The proposed alternative argument was procedurally unfair because it had not been pleaded or properly put in evidence (paras [213]-[243]).
6. The restriction notices were sufficiently compliant because their express references to article 42 incorporated the power to remove restrictions under article 42(4). The claimants had standing to bring the proceedings as beneficial owners, and the non-disclosure point concerning the interim undertakings did not alter the result (paras [244]-[261]).

The exercise of the restrictions was set aside.