UK Company Law: Three recent interesting decided cases - Times of Malta

Today’s contribution highlights, in summary fashion, three important recent UK company law cases, which should of particular interest to students and practitioners in the subject.

1. ClientEarth v Shell plc et: directors duties; environmental responsibilities; derivative actionJudgment of 24 July 2023 [2023] EWHC 1137 (Ch); [2023] EWHC 1897 (Ch); [2023] EWHC 2182 (Ch)

ClientEarth is an activist climate-change pro-environment NGO which holds some shares in Shell plc.

It started proceedings against the company and its directors claiming that they were not carrying out their duties by failing to implement a pro-climate change approach in their decisions as they were now statutorily bound to under the UK Companies Act 2006.

It claimed that the company lacked a climate change risk management strategy and alleged the directors had breached their general duties to promote the success of Shell (article172) and to exercise reasonable care, skill and diligence in terms of section 174. As ClientEarth was a shareholder, the proceedings were classified as a derivative action in terms of UK company law,.

The court could not ignore the fact that in managing and operating a company so huge and complex as Shell, the directors would have to take into account a range of competing concerns, objectives and factors. Directors are indeed still bound to pursue the financial success of their company.

Under UK law, directors have to balance competing interests in the best interest of the company. A court is ill-equipped to second-guess or interfere in the exercise of this discretion. It would therefore be a matter for Shell to determine how to exercises its discretion to comply with the various statutory obligations. The court found no prima facie case that the directors had breached their duties

Although the court rejected the petition, the case has served to highlight the importance of ensuring that environmental concerns become part of the decision-making processes of a company; the risk of court proceedings by activist shareholders; but also the difficulty of actually winning such cases.

To conclude, directors in the UK, but not specifically also in Malta, are bound to exercise in good faith their best judgement in balancing the various listed factors and interests, while having to pursue the financial success of the company - as they, and not as the courts, see fit.

2. An unfair prejudice case: grievance must relate to company’s conduct

Brierley v Howe & Anor [2024] EWHC 2789 (Ch), 6 November 2024

This recent judgment highlights that unfair prejudice claims must be grounded in the conduct of a company’s affairs, rather than in personal grievances.

In this case, a legal dispute over the transfer of shares from one shareholder to another was held to be a private contractual dispute that did not involve the company. The judge found that the arrangement between the two shareholders was “not an arrangement that would or is said to involve the Company in any way”.

As a result, any prejudice did not arise from an “act or omission of the company”, nor from the way the company’s affairs were being conducted. A failure by one shareholder to transfer shares to another did not amount to unfair prejudice, and so the action failed.

The unfair prejudice remedy is available today under the Maltese Companies Act 1995.

Unfair prejudice applications have become a popular means of challenging how a company is being run, particularly because the court has a wide discretion when deciding what remedy to provide. However, the mechanism is not unlimited and cannot be used as a blanket weapon to challenge any conduct that may have an impact on a shareholder.

The petition in this case did not complain about matters involving the conduct of the company’s affairs but involved the personal conduct of the other shareholder. This meant the question of unfair prejudice in terms of law did not arise.

3. Forfeiture of shares annulled; limits to powers of company and its directors

Key Choice Financial Planning Ltd v Evoy [2025] EWHC 4 (Ch)

This is an important UK High Court decision from July 2023. The Companies Act 2006, as an exception to the rule against a company acquiring its shares, permits forfeiture of a company’s shares “for failure to pay any sum payable in respect of the shares”.

It was held that the directors’ power and the company’s ability to forfeit a member’s shares are not without limit but are limited to amounts outstanding and payable on those same shares.

In this case, in summary, the company and its director ordered the forfeiture of the shares of a former director on the ground that despite a call for payment of a debt he owed to the company, he failed to pay. The debt was not related to the shares themselves, which were fully paid up.

A forfeiture amounts to a reduction of capital and as such, is a severe remedy. Accordingly, courts seem unwilling to extend their reach in a way that could endanger the rights of shareholders. The High Court decided that the company could not utilise forfeiture provisions in relation to fully paid shares and declared the forfeiture as null.

David Fabri LL.D., Ph.D. lectures on company law. He has written extensively on the subject. His book on the subject was published in 2024.

This article was first published in The Corporate Times.