Article / 1 Sep 2025
In this month’s update we:
The High Court has refused to grant a shareholder’s petition after finding that none of the conduct complained of was unfairly prejudicial to the shareholder’s interests.
A shareholder can petition the court to intervene when a company’s affairs are being conducted in a manner that is unfairly prejudicial to the interests of some of its shareholders (including the petitioner). If the allegations are made out, the court has broad powers to make such order as it thinks fit, including ordering the purchase of the shareholder’s shares or regulating the company’s future conduct.
The case of Magic Investments SA v Broadbent & anor [2025] EWHC 1898 (Ch) involved a company incorporated in 2010 which sold home-brewing kits. The company’s founders had made substantial loans to the company and, in September 2018, entered into a shareholders’ agreement (the Existing Shareholders’ Agreement).
In 2021, an external investor subscribed almost £1m for shares in the company, implying a total company valuation of around £45m. The subscription terms were documented in a subscription agreement and a nomination agreement. The subscription agreement provided that the parties would, in good faith, use all reasonable endeavours to amend the “corporate documents” to align with transactions for independent investors in start-ups. It also provided that any new shareholders’ agreement would be substantially like the Existing Shareholders’ Agreement but would contain provisions regarding various matters, including the repayment of the founder loans. The nomination agreement stated that the investor would be “entitled to nominate someone to the board”.
In late 2021, the Existing Shareholders Agreement was terminated via a deed of release made between the company and all its shareholders, including the investor. But no new shareholders’ agreement was put in place.
In 2022, one of the founders converted £1,115,440 of his loan into shares as part of a £6m share offering to existing shareholders. The investor subsequently filed a petition alleging unfair prejudice on three grounds:
The Judge granted summary judgment against the investor’s petition on all allegations. In relation to the three grounds of unfair prejudice alleged, the key findings included:
Therefore, the investor’s decision not to participate could not give rise to a claim of unfair prejudice.
This case highlights that an obligation to “use all reasonable endeavours in good faith” to do something does not guarantee that the desired outcome will actually materialise. Such a clause only obliges the parties to try to reach an agreement, not to succeed in doing so.
The case also highlights the distinction between a right to nominate and a right to appoint a director. A right to nominate simply gives the right to suggest a director whose name would then receive serious consideration from the company for the purposes of appointment. If it is intended that a person nominated by a shareholder must be appointed as a director, this must be clearly and unambiguously set out, either in the company’s articles of association or in an agreement between all the shareholders.
Companies House has confirmed that its new identity verification requirements will come into effect on 18 November 2025. At the same time, significant changes will be made to the registers of information that a company is required to maintain. Both changes result from the implementation of provisions in the Economic Crime and Corporate Transparency Act 2023 (ECCTA).
The point at which an individual will need to verify their identity depends on their position, and whether they are already holding office on the implementation date. From 18 November 2025:
The above requirements will also apply to individual members and PSCs of LLPs from 18 November 2025. At a later date (yet to be confirmed), the requirements will be extended to limited partnerships, corporate directors of companies, corporate members of LLPs, officers of corporate PSCs and those who file information at Companies House.
The new rules on company registers mean that from 18 November 2025 a company will only need to maintain an internal version of its register of members. That register will need to comply with the amended provisions of chapter 2 part 8 CA2006.
A company will no longer be required to maintain its own versions of the following registers:
Instead, a company will be under an obligation to file all the required information about those matters at Companies House meaning that, effectively, the Companies House record will become the definitive version of these registers.
Companies House had previously said these changes would come into force sometime in “Autumn 2025”. So, confirmation of a firm date, and one that is towards the end of that window, will be welcomed by companies and their directors, giving more time for them to get up to speed with the substantial changes required.
It is estimated that up to 7 million people will need to verify their identity under the new requirements. Fortunately, this only needs to be done once, even where an individual holds multiple positions across multiple companies: each position will be linked to their verified identity using the same Companies House personal code. In addition, identity verification is a one-off requirement that will not need to be repeated each year.
The High Court has upheld a final order, made under the National Security and Investment Act 2021 (NSIA), requiring FTDI Holding Ltd (FTDI Holding) to divest its entire shareholding in a semiconductor company. Whilst acknowledging the Government’s procedural failure to provide adequate reasons in the final order, the Court concluded that such failure did not justify invalidating the order.
This case marks the second application for judicial review of an NSIA final order. The High Court’s rejection of that application reinforces the Government’s robust powers under the NSIA and sets a high bar for successful challenges to similar orders in the future.
The NSIA allows the Government to scrutinise and intervene in certain acquisitions and investments that could harm the UK’s national security.
Specified transactions within one of seventeen high-risk sectors of the economy must be notified to the Government’s Investment Security Unit (ISU) before completion. Other transactions in scope of the NSIA regime may be “called in” for assessment if the Government reasonably suspects that they could give rise to a risk to national security.
A controversial aspect of the call-in regime is that it was implemented retrospectively. The effect of this is that certain in-scope transactions that completed on or after 12 November 2020 – i.e. before the NSIA came into force on 4 January 2022 – can still be called in for review. Any call-in notice relating to a “retrospective” transaction must be issued within 6 months of the ISU becoming aware of it and no later than January 2027 (five years after implementation of the NSIA).
In R (on the application of FTDI Holding Ltd) v Chancellor of the Duchy of Lancaster [2025] EWHC 1922, FTDI Holding had acquired an 80.2% shareholding in a Scottish-based company (Target) that develops semiconductor devices and related software. The acquisition completed on 7 December 2021. FTDI Holding is a UK registered company ultimately owned by five Chinese funds, with the general partner of those funds being a Chinese state-backed private equity company.
On 23 May 2023, the ISU became aware that FTDI Holding may have acquired Target, leading to a call-in notice being emailed to Target on 22 November 2023. Target subsequently forwarded the call-in notice to FTDI Holding.
The Government’s final order (dated 5 November 2024), mandated FTDI Holding’s complete divestment of its shareholding in Target. The national security risk arising from the transaction was identified as relating to:
FTDI Holding launched judicial review proceedings, challenging the Government’s final order on six grounds. These included that the call-in notice was not served in time, that the Secretary of State was aware of the acquisition more than six months before the call-in notice was sent, and that no or insufficient reasons for making the order were provided.
The Court rejected all of FTDI Holding’s grounds of challenge except for its argument that no or insufficient reasons for making the final order had been given. However, the Court held that this procedural flaw did not invalidate the order as the evidence showed that the Secretary of State had sufficient reasons for making it. Also, it was clear to the Court that Parliament did not intend “that any and all non-compliance should invalidate the order”.
In relation to the timeliness of the Secretary of State’s call-in notice, the Court confirmed that the NSIA’s six-months clock starts when relevant individuals within the ISU not only become aware of an in-scope transaction (i.e. a “trigger event”) but also that the particular transaction may require investigation and potentially the exercise of other powers under the NSIA. In addition, that “awareness” was not restricted to the personal knowledge of the Secretary of State but instead could be met by the ISU staff actually tasked with carrying out the Secretary of State’s investigative functions.
On the facts of the case, the call-in notice had been served within the required time limits. Also, its service on the Target (as opposed to on FTDI Holding) did not affect the timing as the notice was sent to an email address which the Secretary of State reasonably believed would bring the notice to the attention of an appropriate person.
Like the first NSIA judicial review application, this decision signals that the courts are strongly inclined to uphold NSIA government orders and suggests that the prospects of a successful action for their judicial review are limited.
It is difficult to see on what grounds a successful challenge could be made. As shown in this case, provided that the Secretary of State has sufficient reasons to make an order, a procedural failure to adequately communicate those reasons will not invalidate the order. Challenges based on the proportionality or irrationality of any decision will also face a high bar, as the courts have shown significant deference to the Secretary of State’s assessment of national security risks and the appropriate remedies. Any challenge to the six-month “awareness” period for calling in a transaction must also factor in when the ISU became aware of the national security significance of any trigger event, and not just of the existence of the trigger event itself.
On the basis that the NSIA was drafted to give wide governmental discretion when assessing national security risks, it is perhaps unsurprising that in the absence of clear procedural unfairness, the courts will continue to uphold the Secretary of State’s decisions.
In Ross v Phillips & Ors [2025] EWHC 2058 (Ch), the High Court held that the transfer by a limited liability partnership (LLP) of its entire property portfolio was invalid due to the absence of unanimous member consent.
The case highlights the significant, and often unintended, consequences of not having an express LLP agreement in place, resulting in the application of statutory default rules instead.
The affairs of an LLP will usually be governed by an express agreement between the LLP and its members. This agreement will set out the rights and duties of the members between themselves and the LLP, including how decisions relating to the LLP’s business should be taken.
However, the members of an LLP are not legally obliged to enter into any formal LLP agreement, and in its absence, the Limited Liability Partnerships Regulations 2001 (2001 Regulations) provide “default rules” to fill the gap. These default rules can be useful in that they provide much needed certainty, but they can also impose stricter requirements than the members might otherwise choose.
The default rule that was the subject of this case is set out in regulation 7(6) of the 2001 Regulations. It states that in the absence of an agreement, “ordinary matters” related to the LLP’s business may be decided by a majority of its members, but a change “in the nature of the business” of the LLP requires the consent of all the members.
The case concerned an LLP whose core business was holding three properties. The LLP had two members, R and P, but there was no agreement governing the affairs of the LLP.
In 2015, the LLP made a declaration of trust under which beneficial ownership of the properties was purportedly transferred to a new entity controlled by P. R did not sign this declaration. The LLP was then dissolved but restored to the register in 2022.
R brought a derivative claim on the LLP’s behalf, arguing that the transfer was invalid. R claimed that as the transfer changed the nature of the LLP’s business, it required the unanimous consent of the members under regulation 7(6) of the 2001 Regulations and R had not consented to the transfer.
The Court agreed with R and held that the declaration of trust was invalid.
The Court found that the declaration had resulted in a fundamental change to the nature of the LLP’s business. Except for some limited invoicing work, the LLP’s whole business had been the holding of the three properties and that business ended with the declaration. The Court noted that stripping out all or virtually all of a partnership’s assets and bringing about its dissolution, could not be regarded as an ordinary matter.
With no express LLP agreement in place, the default rules under the 2001 Regulations applied, and under regulation 7(6), unanimous consent from all members was required for this fundamental change. As R had not consented to it, the declaration was held to be void, meaning that the three properties were still beneficially owned by the LLP (with R and P sharing equally in its capital and profits by default).
Although unsurprising that the disposal of all of the LLP’s assets amounted to a change “in the nature” of its business, this case provides rare judicial interpretation of the LLP default rules.
It also acts as a reminder of the importance of a carefully drafted LLP agreement that governs the relationship between the LLP and its members and expressly outlines the procedural requirements for all decision-making. Without such an agreement, LLPs may be required to comply with the statutory default provisions, potentially leading to invalid transactions and costly litigation.
First published in accountancy daily.
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