Article / 2 Jan 2026
In this month’s update we:
In Webster & anor v ESMS Global Ltd & ors [2025] EWHC 3107 (Ch) the High Court stepped in to break a boardroom deadlock, confirming that it has inherent jurisdiction to enforce a shareholder's right to circulate a written resolution. The decision offers comfort to shareholders who find themselves faced with a debilitating board deadlock.
Shareholder resolutions of a private company can be passed either at a meeting or via the written resolution procedure. In certain circumstances, shareholders holding at least 5% of the total voting rights in a company can require the company to circulate a resolution. The requisition must identify the resolution being proposed which must be one which may “properly be moved” – a resolution may not be properly moved if it would be ineffective or is defamatory, frivolous or vexatious. The requesting shareholders must pay the expenses of circulation unless the company resolves otherwise, and the company is not bound to comply until a reasonably sufficient sum is deposited.
However, once these conditions have been met it is actually the board that must circulate the written resolution proposed by the shareholders. If the board fails to do this, the company and every officer in default commits an offence and may be liable to a fine. But, crucially, there is no express right in the legislation for a disappointed shareholder to compel compliance.
This case involved a company in which two couples, the Websters and the Soods, were the four directors. Each couple controlled 47.6% of the company's shares with the remaining 4.8% being held by a corporate trustee for the company's employee benefit trust. The relationship between the two couples had completely broken down, leading to the board of directors being routinely deadlocked.
The Websters sought to break this deadlock by appointing an independent director, but this was opposed by the Soods. The Websters formally requested the company to circulate written resolutions to appoint the independent director and deposited £50 to cover the circulation expenses. The Soods refused to sign a board resolution authorising circulation, which resulted in the company failing to comply with its statutory duty to circulate the resolutions.
The Websters issued proceedings seeking a declaration that the company was required to circulate the resolutions, as well as an order compelling circulation and authorisation for Mr Webster to circulate the resolutions if the company failed to comply.
The central question for the Court was whether the statutory provision of an express criminal sanction against defaulting directors implicitly excluded the Court's power to grant other remedies, such as an injunction.
The Judge held that the Court did have jurisdiction to grant the relief sought by the Websters. He said that the relevant statutory provisions explicitly conferred “rights” on the shareholders as against the company. This was not merely a general obligation imposed for public benefit (enforceable only by criminal prosecution), but was a private right belonging to a limited class of persons, ie the shareholders who propose the resolution.
These rights were treated as proprietary rights linked to being a shareholder of the company. The criminal remedy was wholly inadequate for vindicating private rights: it was directed against the directors, not the company, and a conviction did not ensure compliance. So, the Judge concluded that shareholders were intended to have a private remedy, despite the imposition of a criminal penalty.
On the facts, the Judge concluded that the Websters had complied with the statutory requirements, so the company was obliged to circulate the resolutions. He went on to declare that the company was required to circulate the written resolutions and granted an injunction requiring it to do so. He also authorised Mr Webster, as a director and officer of the company, to circulate the resolutions himself if the company failed to comply with the injunction due to what the Judge called the Soods' “obdurate opposition”.
This decision confirms that the statutory right to demand the circulation of a written resolution is directly enforceable in the High Court by way of injunction, providing a powerful tool to resolve internal corporate deadlocks. Where a company board is deadlocked over a vital issue, a shareholder minority can now confidently pursue a mandatory injunction to force putting the matter to a shareholder vote. Directors who attempt to block or frustrate a valid circulation request run the risk of an injunction against the company and the court authorising the requesting shareholders (or a director aligned with them) to carry out the circulation themselves, with the possibility of an adverse costs order against the directors who refuse to comply.
The High Court has struck out an investor's claim under the Contracts (Rights of Third Parties) Act 1999, on the basis that the claim was barred by the rule against reflective loss. Any loss suffered by the investor mirrored the loss suffered by the company in which he held shares, meaning that the company was the proper claimant.
This decision serves as a reminder to investors that the manner in which they invest — via equity or loan — may impact on their ability to bring direct claims against other transaction parties.
The reflective loss principle is a legal rule that prevents shareholders from claiming compensation for losses that are merely reflective of the losses suffered by the company in which they hold shares.
Under this rule, if a company suffers loss due to a breach by a third party, and that loss causes a reduction in the value of the shareholder's shares, the shareholder cannot claim compensation for their personal loss because that loss is considered to be reflective of the company's loss. In that scenario, the company itself must pursue any claim against the third party.
The rule against reflective loss will not, however, prevent a shareholder from claiming in another capacity, such as where they have a personal claim as a creditor or under an indemnity or guarantee.
In Dekel v RE Capital Administrators Ltd and others [2025] EWHC 2976 (Ch), the dispute related to a property development in central London. The property was owned by a UK company (UKCo), which was itself wholly owned by a British Virgin Islands company (BVICo).
The claimant, Mr Dekel, along with several other individuals, had invested in the project by subscribing for shares in BVICo. BVICo used some of this subscription money to acquire shares in UKCo, with the remainder being lent to a Luxembourg company which, in turn, loaned it to UKCo.
BVICo appointed a project manager to manage the development. The management agreement was between BVICo and the project manager, but it included a provision permitting any person “providing finance” to enforce its terms under the Contracts (Rights of Third Parties) Act 1999.
The development project failed, resulting in Mr Dekel losing his investment in BVICo. He brought a third party enforcement action against the project manager, claiming that his loss was caused by the project manager's failure to properly perform its obligations under the management agreement.
The project manager applied to strike out the claim, arguing that:
The Court found in favour of the project manager, striking out Mr Dekel's claim.
The Judge addressed the issue of reflective loss first and found that any loss Mr Dekel had suffered was clearly incurred in his capacity as a shareholder and not as a creditor or financier of the project. The documentation clearly showed that Mr Dekel's investment in the project was by way of subscription of shares in BVICo, rather than any other form of investment.
Any loss suffered by Mr Dekel as a result of the management agreement would be reflected in the loss of return he would have received on his BVICo shares (by way of dividends and other distributions) if the development had been successful. The Court held that this loss was “genuinely reflective” of any loss that BVICo might have suffered and, therefore, Mr Dekel's claim was barred.
On the question of whether Mr Dekel had “provided finance” under the management agreement, the Court held that he had not. The Judge rejected his argument that “providing finance” should be given an ordinary meaning of “providing money”. Instead, the Court's preferred interpretation was that the term meant direct lending or refinancing arrangements relating to the property, and not a subscription for shares in a parent company. It also did not make commercial sense for all 18 of the BVICo shareholders to be construed as having financed the project and, therefore, to have a direct right of action against the project manager.
Although easy to dismiss as a legal technicality, the rule against reflective loss can have important practical and financial consequences for investors.
As illustrated by this case, an investor who provides finance by subscribing for shares will be barred from bringing a direct action against a third party where the investor's loss reflects the loss suffered by the company. A shareholder's investment “follows the fortunes” of their company and their rights will be shaped accordingly.
It is worth noting that a shareholder will still be barred from bringing their own action even if the company chooses not to claim against the third party. This leaves the shareholder with restricted options.
They may be able to bring a derivative claim on behalf of the company, but these are complex and are not always available. Alternatively, the shareholder may consider bringing a claim for unfair prejudice – again, a costly and complex exercise and one which a shareholder may want to avoid.
The London Stock Exchange (LSE) has published a Feedback Statement: Shaping the Future of AIM, summarising the responses to its April discussion paper and setting out its phased approach for the future development of AIM.
Certain of the LSE's deregulatory proposals are described as being effective immediately, with the LSE considering derogation requests and updating its guidance to reflect the changes, pending a redraft of the underlying AIM Rules. These proposals focus on facilitating efficient M&A activity, supporting founder-led businesses and streamlining processes to reduce friction for companies and investors.
The LSE will consult on additional potential reforms during H1 2026 and will continue to review wider policy initiatives in conjunction with the Government, regulators and industry bodies.
The LSE's goal is to innovate and develop AIM so that it remains the “global destination for innovative, diverse and growing businesses”, positioned distinctly between the LSE's Private Securities Market and the Main Market.
In addition to the rule changes highlighted above, the LSE intends to seek additional feedback on several proposals for potential future development. These include the following:
During H1 2026, the LSE expects to publish a consultation on its AIM Rule changes and a new technical note for Nomads. Whilst recognising that exploring options for a redesigned and digitised Admission Document will be a longer process, the LSE remains committed to this proposal.
The LSE will also continue to engage closely with stakeholders and welcomes any further comments on the direction of travel set out in the Feedback Statement.
First published on Accountancy Daily
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