Civil Remedies Available to Shareholders for Breaches of the Companies Act: Webster v. ESMS Global Ltd and Sood

Introduction

In a judgment handed down last year in Webster v. ESMS Global Ltd and Sood, [2025] EWHC 3107 (Ch), the High Court of Justice has confirmed the availability of civil remedies when a breach of the Companies Act 2006 (the Companies Act) only expressly refers to a criminal penalty.

In doing so, the Court has clarified the availability of equitable remedies to shareholders facing breaches of section 292 of the Companies Act, notwithstanding the express imposition of a criminal sanction, and it upheld the private rights of members of a company in addition to the remedies provided for by the Companies Act.

The Court’s decision is relevant for company directors, shareholders, and their advisers considering how to navigate instances of corporate deadlock and potentially competing regulatory, criminal, and civil sanctions and remedies.

Background

The claimants, Mr. and Mrs. Webster (the Websters), were directors of ESMS Global Ltd (the company), and together they controlled 47.6% of the shares. The defendants, Mr. and Mrs. Sood (the Soods), were also directors and controlled the same percentage of shares. Trident Trust Company (Guernsey) Limited (Trident) held the remaining 4.8% of shares as trustee for the company’s employee benefit trust (EBT).

The Websters and the Soods formed the company in 2011 to purchase the medical toxicology information services business of Guy’s and St Thomas’ hospital. The parties’ relationship broke down in the intervening period, and the company was routinely deadlocked. Certain employees brought litigation in respect of the EBT. The company’s articles of association contained provisions to resolve shareholder deadlocks, but they too resulted in further deadlocks. The Websters considered that a resolution to the deadlock lay with Trident’s shares. However, the trust deed establishing the EBT provided that, unless directed by the company, Trident must abstain from voting at any meeting of the company. Nonetheless, following a dispute between the parties, the Royal Court of Guernsey ruled that Trident could vote on written resolutions.

Accordingly, by a letter to the company, the Websters made a request under section 292 of the Companies Act (Members’ power to require circulation of written resolution) for the company to circulate written resolutions that:

• The Websters’ preferred candidate, Andrew Chamberlain, be appointed as an independent director with immediate effect; and
• Subject to that, the company pay Mr. Chamberlain a certain amount per hour in respect of his services.

The Websters’ letter requested the circulation of the resolutions within 21 days and attached evidence of Mr. Chamberlain’s willingness to act. On the same day, Mr. Webster deposited £50 with the company to cover any expenses of circulating the resolutions.

Mr. Sood responded to the Websters’ letter within minutes and, in an apparent example of the extent to which the parties’ relationship had deteriorated, stated that a minimum payment into the company of £150,000 would instead be needed, to cover “the initial processes required” and the fees of the company’s advisers for “various tax and trust matters.”

The Websters responded by circulating a written board resolution authorising circulation of their proposed written shareholder resolutions. The Soods refused to sign the board resolution.

The Websters then commenced Part 8 proceedings, seeking:

• An order declaring the company be required to circulate the written resolutions pursuant to sections 292 and 293 of the Companies Act;
• An order that the company circulate the written resolutions; and
• An order that if the company failed to comply, then Mr. Webster, as director and officer of the company, be authorised to circulate the resolutions on behalf of the company.

Importantly, section 293(5) of the Companies Act provides that: “In the event of default in complying with this section [i.e., failing to circulate the resolution, as required], an offence is committed by every officer of the company who is in default.”

The Parties’ Arguments

First, the Soods argued that the proposed written resolutions were vexatious within section 292(2) of the Companies Act and that Mr. Chamberlain was not and would not be independent, such that the company was not required to circulate them. This argument was dropped shortly before trial.

Second, the Soods argued that the Websters’ claim was misconceived because no civil cause of action arose for any breach by the company of section 293 of the Companies Act, such that the Court lacked jurisdiction to grant the relief sought.

The questions for the Court were therefore (1) whether the company was obliged under sections 292 and 293 to circulate the relevant resolutions to appoint Mr. Chamberlain and (2) if so, did the Court “have jurisdiction to grant the relief sought?” Subject to (2), the Soods in fact conceded to (1), that the company was obliged to circulate the proposed written resolutions.

For their part, the Websters argued:

• They were not required to establish a civil cause of action to obtain the injunctive relief they sought; and
• Given that the Companies Act in this regard imposed private law rights on members of private companies (and, accordingly, correlative duties on the company in respect of those rights), it was “to be inferred […] that Parliament intended injunctions and declarations to be available” to the members to enforce those rights.

In turn, the Soods argued:

• That because sections 292 – 293 of the Companies Act created a new right (as opposed to a new remedy for an old right), and expressly provides a criminal sanction for a default, it impliedly excluded the Court’s ability to grant alternative relief (i.e., that Parliament intended that criminal sanction to be an exclusive remedy);
• That because section 295 of the Companies Act provides for a company to seek an order allowing it not to circulate a resolution, but there is no corresponding right specified for members to seek an order requiring circulation, it suggests the Court did not have jurisdiction to grant the relief sought; and
• That whilst the right at section 292 was afforded to a limited class of persons (the members), it was not enough to be an ‘exceptional’ case, such that the Court might assume jurisdiction.

Decision

The Court found for the claimants, the Websters. It held that section 292 enables shareholders to enforce their civil rights – property rights in the company - via equitable remedies and that Parliament did not intend the express criminal sanction (the protection of a public right) to be the shareholders’ sole remedy (in respect of their private ones).

In this regard, the Court stated: “While there is plainly a public interest in directors ensuring that the company complies with section 292 […] which is appropriate to be protected by Parliament’s imposing a criminal penalty in case of default, there is equally to be considered the private right of members against the company for failing to circulate draft resolutions which they propose. That private right […] is in the nature of a property right forming part of the bundle of rights which come with being a shareholder.” The right in this case was the shareholder’s right against the company for the circulation of written resolutions.

The Court also noted that a criminal sanction was wholly inadequate for the task of vindicating shareholders’ rights: “[I]t is directed against the directors, not the company; a conviction does not ensure compliance, and non-compliance following a successful outcome can only be met with the threat of further prosecution […].” It continued: “Unless the criminal sanction imposed is intended for the enforcement of [shareholders’] private rights, I cannot see its imposition as implicitly excluding the enforcement of the private rights by action.”

The Court also held that there was no reason, if an injunction were available under section 996 of the Companies Act (being powers of the Court in respect of unfair prejudice matters), why the same remedies would also not be available under section 292.

Accordingly, the mere existence of a statutory remedy is not decisive. The question is one of statutory construction. In this case, the Court concluded that the company’s members were intended to have a private remedy, notwithstanding the express public one.

Comment

In reaching its judgment, the Court was referred to a great deal of case history and its analysis stretched back to the merger of the common law courts and the Court of Chancery in the 1870s. This is by no means a simple area of law.

By clarifying whether a statutory breach that results in an express criminal sanction also confers a civil remedy, the Court has provided valuable guidance to boards, companies, and shareholders (and those who might seek to subvert the statute).

When faced with a rule, in respect of which non-compliance carries a criminal sanction, decision-makers will nonetheless have to reckon with the possibility of equitable remedies obliging their compliance. The decision provides a clearer framework when considering competing compliance obligations, shareholder disputes, and corporate and officer liabilities.

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We would like to thank trainee William Simpson for his assistance with this insight.

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.