Refusal, Rectification and Appeals

In one line

A company that will not register a transfer must say so with reasons within thirty days, the transferee may appeal to the Tribunal, the securities of a public company are in any event freely transferable, and where a register is wrong for any reason the Tribunal may order it rectified and damages paid.

In exam wording: under section 58(2) the securities or other interest of any member in a public company shall be freely transferable, with a proviso that any contract or arrangement between two or more persons in respect of transfer of securities shall be enforceable as a contract.

Why the law has this at all

Two distinct grievances are dealt with by these two sections, and the first step in any answer is to say which is which.

The first grievance is a refusal. A company, usually a private one whose articles give the directors a discretion, declines to put the transferee's name on the register. Nothing about the register is factually wrong; the complaint is that the company should have registered and would not. That is s.58.

The second grievance is an error. A name is on the register that should not be there, or is missing when it should be there, or the entry was delayed. The complaint is that the register does not state the truth. That is s.59.

Behind s.58 lies a policy compromise that runs through the whole of company law. A private company is a quasi-partnership whose members chose each other, so its articles restrict transfer, and the Act allows the restriction while insisting on reasons and an appeal. A public company raises money from strangers, so its securities must be freely transferable, and the Act says so in terms.

Behind s.59 lies the fact that the register, not the certificate, is the operative record of membership, as [Securities as Property] explains. If the register is the source of rights, there has to be a summary way of correcting it, and it has to reach the depository's records as well.

Section 58: refusal and appeal

58(1): the duty to give reasons. If a private company limited by shares refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any securities or interest of a member, it shall, within thirty days from the date on which the instrument of transfer or the intimation of transmission was delivered, send notice of the refusal to the transferor and the transferee, or to the person giving the intimation of transmission, giving reasons for the refusal.