Shareholders beware: your limited protections against a forged stock transfer

Background to the case

In early 2019, JDK Construction Limited (JDK) was a family run business with 50 ordinary shares owned by Jeanette Keegan, and the remaining 50 ordinary shares owned by Julie Keegan (Jeanette’s ex-daughter-in-law). In April 2019, Julie Keegan forged a stock transfer form, which purportedly transferred Jeanette’s 50% shareholding to Julie. As she had the same initials as Jeanette, Julie convincingly forged the STF by simply signing “J. Keegan”. Electronic filings were made with Companies House that reflected the forgery.

With her own valid 50% shares, and Jeanette’s forged 50% shares, Julie went on to sign a written resolution that JDK be wound-up voluntarily and liquidators be appointed. Mills & Reeve were instructed when Jeanette became aware of the resolution and forgery, and wrote to the liquidators explaining that their appointment was invalid. The liquidators argued their appointment was valid because the register of members said Julie was 100% shareholder and the register of members is conclusive as to the identity of the members of a company.

In the appealed decision, His Honour Judge Hodge KC determined:

“[E]ven 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” [50] (emphasis added).

(Read the full judgment here)

The appeal

The decision of the lower court was appealed, with Steven Fennell of Exchange Chambers arguing that s.112 of the Companies Act 2006 provides that the register of members is only prima facie evidence of its members, it is not conclusive, and that HHJ Hodge’s judgment ultimately created a fraudster’s charter.

On 5 August 2024, the Court of Appeal handed down a unanimous judgment upholding HHJ Hodge’s decision. Relying on the authority of Enviroco Limited v Farstad Supply A/S, Lord Justice Snowden determined that “the entries on the register of members are presumptively valid and the members of the company are taken to be those shown on the register “unless and until the register is rectified”” [58].

This decision means that, for as long as someone’s name is on a company’s register of members, they are legally members of the company and can validly execute all the powers of a shareholder under the Companies Act 2006, regardless of how their name was entered. The means by which an entity is entered on the register is of no importance.

I’m a shareholder, what does this mean for me?

This judgment means that the onus is on shareholders to be vigilant with their shareholdings. You ought to keep a close eye on Companies House and ensure you know (a) who is in control of the register of members, and (b) the contents of the register of members.

If you were to fall victim to a forged STF like Jeanette, the Court of Appeal have determined that to challenge the validity of company decisions made with the power of forged shares, the register must first be rectified retrospectively.

However, the company may need to apply to the court for such rectification and it is entirely at the court’s discretion whether the retrospective rectification is ordered. If retrospective rectification is not granted, you may find yourself in a similar position to Jeanette’s, with no remedy against unwarranted company resolutions instigated with a forged shareholding.