Legal News

TP ICAP Ltd v NEX Group Ltd [2022] EWHC 2700 ( Comm) The claims for breach of warranty stemmed from two probes: one by the US Commodities Futures Trading Commission concerning swaps trading linked to bond issuances and another by a Frankfurt public prosecutor targeting a named director of a group entity in relation to cum-ex trading during the relevant period. In essence, the alleged breaches concerned warranties addressing the following: that no group company, officer, or employee had been the subject of any non-routine investigation of any kind by a ‘ Governmental Authority’ within the prior 18 months; and that no circumstances existed which could reasonably be expected to result in litigation against a group company where the amount in dispute exceeds £500,000. Those warranties were, in places, qualified by a seller-awareness threshold (here defined as the actual knowledge, after...

Mars Capital Finance Ltd v Hussain and others [2021] EWHC 2416 ( Ch) What are the practical implications of this case? This ruling underlines that, after a transfer of land has been entered on the register, any prior defects in the enforceability of the underlying contract for that transfer cease to matter. Accordingly, earlier formal shortcomings cannot be used to unsettle a completed, registered disposition. That principle is clear and decisive here. In addition—though not essential to the outcome—the judge endorsed the position that sections 43 and 44 of the Companies Act 2006 permit three mechanisms for a company to enter a written contract (by the company or on its behalf). This contrasts with the interpretation that, for the purposes of the Law of Property ( Miscellaneous Provisions) Act 1989, only two methods exist, and it departs from Lewison J’s approach in Redcard Ltd v...

Macom GMBH v Bozeat and others [2021] EWHC 1661 ( Ch) What are the practical implications of this case? This decision follows the trial of an unfair prejudice petition under CA 2006, s 994. These claims seldom reach a trial, so a published post-trial ruling is noteworthy in its own right. First, the petitioner held a majority stake rather than being in the minority. Because majority owners can, in normal circumstances, direct the company through internal governance, unfair prejudice actions are always brought by minority holders. Here, however, the acquisition terms granted a minority shareholder a casting vote in his capacity as a director. Consequently, the petitioner’s practical avenue was to advance this petition. Another striking feature is that the court declined to make the usual CA 2006, s 996 order for the respondent to purchase the petitioner’s shares. Although CA 2006, s 996 is cast in...

Re Hut Group Ltd; Zedra Trust Company ( Jersey) Ltd v The Hut Group Ltd [2021] EWCA Civ 904 What are the practical implications of this case? The Court of Appeal, in this decision, reaffirmed two central principles. First, when evaluating whether directors’ conduct, representing breaches of their fiduciary and statutory obligations to the company, amounts to conduct that is unfairly prejudicial to the petitioner, the critical enquiry is not to whom those duties are owed, but whether the complained‑of conduct unfairly prejudiced the petitioner in his capacity as a shareholder; if so, it is conduct capable of establishing unfair prejudice. Second, allegations of bad faith akin to fraud must be supported by the proper pleading of credible, cogent primary facts that sustain those allegations, either expressly or by reasonable inference drawn from them. Bare assertions or generalised averments of bad faith, advanced without pleaded...

Secretary of State for Business, Energy and Industrial Strategy v Rajgor [2021] EWHC 1239 ( Ch), [2021] All ER ( D) 51 ( May) What are the practical implications of this case? The Companies Act 2006 ( CA 2006), section 386, sets out in detailed terms a company’s obligation to maintain sufficient accounting records, and nature of what must be retained. This judgment serves as a stark caution to directors (and their advisers) that avoiding a misconduct finding under section 6 of the Company Directors Disqualification Act 1986 will be challenging where any of the following are relied upon: asserting that records existed but were not handed over to the liquidator (or another insolvency office-holder) or to the Insolvency Service attempting to shift responsibility onto individuals engaged by the company (be they an accountant, bookkeeper, or similar member of...

Re TMG Brokers Ltd (in liquidation); Baker v Staines [2021] EWHC 1006 ( Ch) — What are the practical implications of this case? Company payments treated as shareholder distributions that ignore the statutory framework in Part 23 of the Companies Act 2006 ( CA 2006) are ultra vires, and consequently amount to a breach of the director’s duty under CA 2006, s 171 (among other duties)... Directors must be able to explain and justify sums leaving the company’s bank account ( Re Idessa ( UK) Ltd [2012] 1 BCLC 80), and where the company’s books and records are not produced, the court may draw adverse inferences ( Re Mumtaz Properties Ltd [2011] EWCA Civ 610)... For relief under CA 2006, s 1157, honesty on its own is not enough—the director must also establish that the belief relied upon was...

The European Parliament has backed a legislative initiative report obliging companies operating within the EU internal market to identify and remedy their effects on human rights and the environment. It also endorses sanctions for non-compliance and the provision of legal support for third-country victims of corporate misconduct. Adopted by 504 votes in favour, 79 against and 112 abstentions, the report presses for a binding EU law to ensure businesses are held to account and made liable where they cause—or contribute to causing—harm to the environment, human rights and good governance... Who would fall within the scope of the proposed law? In short, both EU and non- EU businesses. The proposed law would apply to: large undertakings governed by the law of an EU Member State or established in the territory of the EU, regardless of sector and irrespective of public ownership or control ...

Travelport Ltd and others v Wex Inc; Olding and others v Wex Inc [2020] EWHC 2670 ( Comm) What are the practical implications of this case? In this matter, the intricate MAE provision contained numerous carve-outs stating that specified circumstances were not to count as a material adverse effect; however, those carve-outs were themselves qualified by a further proviso allowing certain matters to be considered where they had a disproportionate impact on either of the two corporate groups when set against appropriate industry comparators, each group being viewed in the round collectively. The degree of abstraction (e.g. no express definition of what amounted to 'material') left significant room for contention over the contract’s interpretation. There was little English authority addressing the proper approach to construing provisions of this kind. Its layered structure—exceptions upon exceptions with a...

Re Legal and General Assurance Society Ltd and another company [2020] EWHC 2299 ( Ch), [2020] All ER ( D) 37 ( Sep) What are the practical implications of this case? This ruling is plainly positive for insurers and banks seeking to utilise the Part VII transfer mechanism under the Financial Services and Markets Act 2000 ( FSMA 2000). Notably, the court’s method of distinguishing this transfer from that in Re Prudential Assurance Company Ltd and others [2019] EWHC 2245 ( Ch) is especially helpful, enabling many schemes to progress without companies being overly anxious about contravening the Re Prudential decision. That stance should reassure stakeholders relying on established practice while still acknowledging the court’s vigilance arising from the earlier decision and debate. However, it would be incorrect to claim that the Re Prudential judgment—at least pending the outcome of the intended...

Introduction The UK’s disapplication of so‑called ipso facto clauses—contract terms allowing a party to end the agreement when insolvency proceedings begin against the other—was made a permanent feature by the Corporate Insolvency and Governance Act 2020 ( CIGA 2020). For deeper commentary on CIGA 2020’s reforms, see News Analysis: Corporate Insolvency and Governance Act 2020—the rise of the moratorium and restructuring plan and the fall of the Scheme? Halting such terminations marks a significant shift in UK insolvency practice. Ipso facto defaults are standard in most formal agreements, save for the briefest or most transitory. Further, English authority has treated a counterparty’s insolvency as repudiatory where it deprives the insolvent of the ability to perform. Statutes invalidating these provisions exist in many jurisdictions. The UK legislation mirrors the conventional model: first declaring...

Nosnehpetsj Ltd (in liquidation) v Watersheds Capital Partners Ltd and another [2020] EWHC 1938 ( Ch), [2020] All ER ( D) 144 ( Jul) What are the practical implications of this case? The key takeaway is that directors will generally be held to the content of confirmation statements, accounts and, for the period before 2016, annual returns. Many private companies operate with a degree of informality, and directors sometimes shift assets within a small group merely by reflecting the transfers in those filings. A director who acts in that way is unlikely to be allowed to step back from those actions by asserting that corporate formalities were not observed, particularly where third parties have relied on the records or one group company has gone into insolvency. The old saying that equity will not assist a volunteer carries limited weight in corporate contexts. The modern stance is that...

Boston Trust Company Ltd (in their capacities as trustees of Erutuf Trust) (suing on behalf of Erutuf Trust and all other shareholders in Tellisford Ltd other than VOC Trustee Ltd) v Szerelmey Ltd [2020] EWHC 1352 ( Ch) What are the practical implications of this case? As permission to appeal has been granted, it would be premature to attach substantial weight to the ruling. Should the decision survive on appeal, though, it would amount to a practical yet striking enlargement of those entitled to advance common law derivative proceedings. The court acknowledged scenarios in which an applicant can present prima facie material indicating a derivative action has real prospects, but an apparent irregularity means the would‑be claimant presently lacks standing to sue. In that event, the court held it may confer permission conditionally, while remedial steps—such as bringing a...

Prompted by the coronavirus ( COVID-19) outbreak, government has unveiled details of the Corporate Insolvency and Governance Bill. It had earlier consulted on reforms to the UK insolvency framework and issued its reply on 26 August 2018 (see News Analysis: Exploring the government’s response to the insolvency and corporate governance consultation). The Bill is moving through parliament and its provisions may still change during that journey. Broadly, it reflects the conclusions in the government’s response, and this News Analysis considers the Bill as at 20 May 2020. Among the measures proposed, the Bill (at clause 7 and Sch 9) inserts a new Part 26A into the Companies Act 2006 ( CA 2006)— Arrangements and Reconstructions for Companies in Financial Difficulty (a ‘restructuring plan’). What are the practical implications? We have already witnessed multiple significant corporate collapses worldwide tied to coronavirus recently. Some failures have been...

Boston Trust Company Limited and anor v Szerelmey Limited and ors [2020] EWHC 1136 ( Ch) What are the practical implications of this case? This ruling makes clear that, although the criteria for standing to pursue a derivative claim have a degree of flexibility, that flexibility is not without boundaries. The judgment recognises scope, yet emphasises constraints. A derivative action can be advanced by holders of the legal title to shares, or by those with beneficial ownership within a company. By contrast, persons with subordinate equitable interests lack a sufficient stake to secure permission to proceed with a derivative claim at common law. Where the would-be claimant is a trustee, it encounters a conceptual problem if it relies on a beneficial interest in the company’s shares to found standing. In such a scenario, permission ought to be sought by the...

On 29 April 2020, the Fire Safety Bill received its second reading in the House of Commons and was also referred to a Public Bill Committee. The Bill will amend the Regulatory Reform ( Fire Safety) Order 2005, SI 2005/1541, to provide clearer guidance on the duties of the Responsible Person or duty-holder in multi-occupied, residential premises. Currently, under the Fire Safety Order, fire and rescue authorities hold enforcement powers over the shared parts of blocks of flats, for example entrance halls and landings. They do not possess such powers beyond the front doors of flats to act within individual homes, nor do they also have powers concerning the exterior of buildings. The Fire Safety Bill proposes amendments to the scope of the Fire Safety Order to make clear that the responsible person or duty-holder for multi-occupied residential buildings must manage and reduce fire risk relating to the...

Homes for England v Nick Sellman ( Holdings) Ltd and another [2020] EWHC 936 ( Ch) What are the practical implications of this case? This judgment underscores the contrast between the common law and the statutory regime governing permission to bring derivative claims. It emphasises that common law takes a tighter line than the CA 2006, s 263 test: a prospective claimant must allege fraud or a dishonest breach of duty to proceed at common law; mere negligence by the putative defendant will not do. In addition, for equitable fraud there must be proof that the alleged wrongdoer secured some personal advantage. That advantage need not be financial—pursuit of the wrongdoer’s own non-monetary interests at the claimant’s expense has been accepted as enough (see Estmanco ( Kilner House) Ltd v Greater London Council [1982] 1 All ER 437 and Abouraya v Sigmund [2014] EWHC 277 ( Ch) at...

Filatona Trading Ltd and another v Navigator Equities Ltd and others; Danilina v Chernukhin and others [2020] EWCA Civ 109 What are the practical implications of this case? If you wish to be certain that the individual named in the agreement is the sole true counterparty, the contract must deploy clear, unequivocal wording that shuts out any principal from relying on the rights and remedies within it. Standard form clauses to this effect are identified at para [90] of the judgment. Heightened caution is required where there is not only a principal, but one who is both known and disclosed. Where a party is fully aware that the signatory acts as a nominee or agent, any clause aimed at excluding that principal must be expressed with particular clarity, because such wording works against the strong common law presumption that parties are not to be treated as...

Bioconstruct Gmb H v Winspear and another [2020] EWHC 7 ( QB) What are the practical implications of this case? The ruling rekindles discussion about optimal methods for completing a closing with pre-executed pages, particularly where multiple parties and signatories are involved and where amendments or corrections are made to previously circulated written contracts. The court’s analysis, relating to a deed that was both signed and acted upon by the party seeking to rely on it, yet held invalid and unenforceable, underscores the need for caution when attaching pre-signed signature pages to deeds. In this respect, the judgment draws attention to a circumstance not expressly covered by the Law Society of England & Wales’ Practice Note, ‘ Execution of documents by virtual means’ (16 February 2010). That guidance identifies Koenigsblatt v Sweet as the leading authority on ratification for written...

Saatchi v Gajjar & Anor [2019] EWHC 3472 ( Ch) (12 December 2019) What are the practical implications of this case? Where a shareholder seeks permission to pursue a derivative claim alleging a director’s diversion of company assets, the court applies the criteria in section 263 of the Companies Act 2006 ( CA 2006). It will scrutinise any contention that members sanctioned or ratified the alleged misuse of assets, requiring clear and unequivocal proof on that point (which was absent here). Significant emphasis is placed on whether a person complying with CA 2006, s 172 (the duty to promote the company’s success) would prosecute the claim. That entails evaluating the merits of the case, but without conducting a mini-trial. Accordingly, the court undertook a careful review of the specific instances of alleged misappropriation and the director’s explanations for them. Another highly material...

For much of the UK’s membership of the EU, the interaction between European law and the domestic system has sparked debate. To many observers, it operates as a limitation—practically, if not as a strict matter of doctrine—on the constitutional tenet that Parliament, acting with the Crown, is sovereign. In that context, the European Union ( Withdrawal Agreement) Bill ( WAB) sets out a number of measures with significant consequences for how sovereignty is to be understood in the United Kingdom. Current status of EU law At present, section 2(1) of the European Communities Act 1972 ( ECA 1972) stipulates that all rights, powers, liabilities, obligations and restrictions created by or under the Treaties, together with all remedies and procedures they provide, are to take legal effect in the United Kingdom without further legislation. Those rights must be recognised, available and enforced in UK law, and...