Corporate update: the latest corporate law developments November 2023

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In this month’s update we:

  • consider the FCA’s new rules on authorised firms approving financial promotions by unauthorised persons;
  • look at a case involving the disputed novation of a debt; and
  • examine a case where the effectiveness of an accountant’s disclaimer of liability was challenged.

New rules on authorised firms approving financial promotions by unauthorised persons

The FCA has published a policy statement about its new rules affecting authorised firms that want to approve financial promotions issued by unauthorised persons. Once the new regime is in force, an authorised person will need permission from the FCA in order to approve any such financial promotion.

The current position

A financial promotion is a communication by someone, acting in the course of business, which is an invitation or inducement to engage in investment activity. It includes formal documents, such as a prospectus or information memorandum about a company, but also more informal communications about investment activity such as TV or radio adverts, social media promotions and telephone calls.

The current restriction on issuing a financial promotion means that this can only be done:

  • by a person authorised by the FCA to carry on investment activity;
  • where an authorised person has approved the content of the financial promotion; or
  • if an exemption applies.

The FCA was concerned that too many non-compliant financial promotions were being approved by authorised persons and then communicated to consumers by unauthorised persons. In 2022, over 8,500 promotions had to be amended or withdrawn because they failed to adequately identify relevant risks. The FCA says that, as a result, consumers have been harmed when they have relied on these financial promotions but the underlying products have been inappropriate for them and have not matched their attitude to risk.

The gateway

From 6 November firms that wish to be able to approve financial promotions on behalf of unauthorised persons will need to apply to the FCA’s gateway for permission to do so. Provided they have applied before the deadline of 6 February 2024, they will continue to be able to approve financial promotions for unauthorised persons until their application is determined. Any firm that has not applied for permission by the time the initial application window closes on 6 February will need to stop approving financial promotions for unauthorised persons from that date.

The application will need to indicate how may promotions the firm expects to approve and the revenue it expects to generate from doing so. It will also need to explain what expertise it has to approve the type of promotions for which it is applying for approver permission. The FCA has indicated that this will be a key factor when assessing an application for permission and that, for example, it wouldn’t expect a firm with only consumer credit permissions to apply for permission to approve promotions relating to investments in shares.

An authorised person will not need to apply for permission if:

  • the person approves its own promotions for communication by an unauthorised person (for example, its own content advertised in a newspaper or on social media);
  • the person approves a financial promotion on behalf of an unauthorised member of its group; or
  • the person approves (as principal) a promotion made by its appointed representative in relation to a regulatory activity for which the authorised person has accepted responsibility.


The FCA believes that the new regime will produce a higher degree of compliance with its financial promotion rules, leading to a generally raised standard of these promotions. It believes that, in turn, this will ensure that consumers are protected and are able to help themselves when interacting with financial services.

Lender unable to pursue Oldham Athletic for novated debt

The High Court has held that a loan agreement between a lender and a football club had in fact been novated to the club’s majority shareholder, meaning the shareholder and not the club was liable for the outstanding balance.

What is novation?

A novation of a contract takes place where the relevant parties agree that an existing contract is replaced by a new one. Typically, it occurs when a contract between A and B is replaced by a contract between A and C, with C assuming B’s rights and obligations. Consideration is provided by the discharge of the old contract, specifically by A agreeing to release B, B providing C in its stead and C agreeing to be bound to A.

The agreement of all parties is required to the novation of a contract. That consent could be provided expressly but it could also be inferred from conduct. Consent need not be in writing and whether or not it has been provided will be a question of fact.

The facts

In Necarcu Limited v Oldham Athletic (2004) Association Football Club Limited [2023] EWHC 2096 (Comm), Necarcu (the Lender) made a loan of £350,000 to Oldham Athletic Football Club (the Club). The loan was secured by a debenture granted by the Club in favour of the Lender. When the Club’s chair and majority shareholder, Mr Corney (the Chair), began negotiations for the sale of the Club, this involved discussions about the satisfaction of the debt owed to the Lender, an entity to which the judge noted the Chair had a “close connection”.

A letter from the Lender to the Chair stated that the Lender had “made an agreement with [the Chair]”, and that “on completion of the sale of [the Club] the debenture with [the Lender] will be satisfied personally by [the Chair]”.

When the Lender sought repayment of the outstanding balance of the loan from the Club, the Club argued that the loan agreement between the Lender and the Club had been novated to the Chair, as evidenced by the above letter. Accordingly, the Club argued that it had been released from its obligation to repay the loan and was no longer liable to the Lender under the loan agreement.

The Lender argued that the agreement had not been novated and that the Chair had simply agreed to pay the Club’s liability on its behalf, rather than to assume all its obligations under the loan agreement.

The decision

The judge agreed with the Club. He said that it was clear from the surrounding evidence that the potential sale of the Club was proceeding on the basis that the Chair would be satisfying the debt to the Lender personally. It was against that background that the letter referred to above had been written.

The agreement embodied in that letter amounted to an express novation of the debt from the Club to the Chair. There was an express agreement that, on completion of the sale of the Club, the Club’s liability was immediately discharged and the Chair assumed that liability. That express agreement had been made by the Chair in a dual capacity, both personally and on behalf of the Club. There was a tripartite agreement between the original contracting parties (the Lender and the Club) and the new contracting party (the Chair), which had been supported by consideration in the form of the Chair’s personal assumption of liability for the debt. So the loan agreement had been validly novated.

Accordingly the judge dismissed the Lender’s claim against the Club.


When parties wish to transfer a contract, they are usually faced with a choice of either assigning their rights under that contract or else novating it entirely. The requirement for the other contract party to consent to any novation means that route is rarely used in practice – it gives that party the opportunity to renegotiate the contract on more favourable terms in return for giving their consent to the novation. This case is a useful reminder of both the requirements for a novation and the advantages of ensuring that the parties’ intentions are always accurately recorded in writing.

Effectiveness of accountant’s disclaimer of liability challenged

When dismissing an application for summary judgment, the High Court has held that the buyers of a company had a realistic prospect of succeeding in their claim for negligence against the company’s accountants. The accountants had sought to rely on a disclaimer of liability to rebut the claim that they had assumed any responsibility to the buyers.

The facts

In Amathus Drinks plc and others v EAGK LLP and another [2023] EWHC 2312 (Ch), the claimants (the Buyers) entered into a share purchase agreement to buy the entire share capital of Bablake Wines Limited (the Company). The purchase price for the shares was subject to a price adjustment (based on net assets) requiring the preparation of completion accounts.

The Buyers had previously engaged EAGK LLP (a firm of accountants) to carry out financial due diligence on the Company and, following completion of the acquisition, the same firm was instructed to prepare the completion accounts and issue a completion certificate confirming the adjusted net asset figure. EAGK was also engaged as the Company’s auditor to prepare its statutory accounts (with those accounts forming the basis of the completion accounts).

No engagement letter for EAGK’s work on the completion accounts or the statutory accounts could be found (meaning that it was disputed whether the Company or the Buyers had engaged EAGK). However, there was evidence of a schedule that ought to have been attached to the statutory audit engagement letter, and that schedule included a disclaimer of responsibility for the audit work to anyone other than the Company (and the Company’s members as a body). The audit report contained a similar disclaimer.

The Buyers subsequently discovered an alleged accounting fraud which resulted in the Company’s net assets being inflated, meaning that the Buyers had overpaid for the shares in the Company.

The Buyers’ claim

The Buyers issued proceedings against EAGK alleging that EAGK had been negligent in failing to identify the accounting fraud during its work on the completion accounts and completion certificate, and during the statutory audit. The Buyers claimed that EAGK owed them a common law duty of care because of an assumption of responsibility by EAGK or because it was fair, just and reasonable in the circumstances to impose such a duty.

EAGK denied liability and applied for summary judgement. EAGK claimed that it had been engaged by the Company and not the Buyers and so only owed a duty of care to the Company. It had also expressly disclaimed any liability to anyone other the Company (and its members as a body) in its terms of engagement.

The decision

As this was an application for summary judgment, the court only had to decide whether the Buyers had a realistic prospect of establishing at trial that EAGK had assumed responsibility to them in relation to the net asset calculations in the completion certificate. The court concluded that the Buyers had an “entirely realistic prospect” of doing so and dismissed EAGK’s application.

In reaching this decision, the court referred to a similar case – Barclays Bank plc v Grant Thornton UK LLP [2015] EWHC 320 (Comm) – where auditors had successfully relied on disclaimers that were in substantially the same form as those relied on by EAGK. Although the judge recognised the similarities between the two cases, he was able to distinguish the Barclays decision on several grounds. These included the existence of continuing communications between the Buyers and EAGK after the acquisition had completed, which suggested a “continuing and direct commercial relationship” between the parties. There was no such continuing relationship in the Barclays case.


Despite this case involving an application for summary judgment only, it still serves as a useful reminder that disclaimers of liability are not bullet-proof and there may well be circumstances where an assumed duty of care to a third party will override an express disclaimer of liability.

When assessing the existence of any assumption of duty, a court will consider not only the factual matrix, but also such matters as the commercial sophistication of the third party and the intentions of the parties. Behaviour which contradicts the disclaimer will also be highly relevant, including where, such as in this case, there is a suggestion of a continuing commercial relationship between the adviser and the third party.

The case also illustrates the importance for advisers of properly drafted engagement letters that confirm to whom any duty of care is owed. This case may never have reached the courts if a proper engagement letter had been in place in relation to EAGK’s work on the completion accounts and completion certificate.

First published in Accountancy Daily.

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