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Share transfers: To register or not to register...?

The recent spat between Lush Cosmetics and Silverwood Brands plc is a reminder of the need for shareholders and the board to be fully familiar with the Articles of the company, especially when it comes to share transfers. If there is any doubt, seeking legal advice is prudent to avoid subsequent disputes. 

Shares in a company are transferrable in accordance with the Articles. It is common practice for Articles to place restrictions on the transfer of shares (especially in private or unlisted public companies) to control the admission of new shareholders to the company. A common type of restriction is for the Articles to give the power for the directors to refuse to register a transfer of shares (either as a general discretion or one that is exercisable in certain specified circumstances). If there are pre-emption rights within the articles these should be carefully adhered to otherwise directors may refuse to register the transfer.  

Directors must be careful to act only within their powers. As the power is fiduciary in nature, directors need to ensure they act in good faith and a manner promoting the success of the company as a whole and not for a collateral purpose. This is important as the transferee can challenge the failure to register the transfer and can seek rectification of the Register of Members.  

If a share transfer is refused, the transferee can seek confirmation of the reasons for the refusal to register the transfer and the directors must comply with this. This extends to providing such further information regarding the reasons for their refusal as the transferee may reasonably request (section 771 CA 2006) but does not extend to being afforded copy of board meeting minutes.  

A transferee will no doubt want to be written up into the Register of Members in a timely manner – it is the Register of Members that is determinative of who the shareholders of a company are and what shares they hold. Only registered members can exercise the rights attaching to their shares. 

It remains to be seen what the outcome of the dispute between Lush and Silverwood will be and whether the refusal to register the transfer was justified. 

Silverwood Brands PLC (AQSE:SLWD) has rejected the reasons given by Lush Cosmetics as to why it blocked the investment company’s acquisition of a 19.8% stake in the retailer. Lush declined to record Silverwood’s December acquisition on the grounds that it was not in accordance with its articles of association.