Corporate Law Update: 4 - 10 October 2025

10 October 2025

This week:

  • The Court of Appeal analyses whether repudiatory breaches of a shareholders’ agreement were capable of remedy
  • A break fee payable on an aborted merger was not taxable as a disposal of assets

Court examines whether breaches of a shareholders’ agreement could be remedied

The Court of Appeal has examined whether material and persistent breaches of a shareholders’ agreement triggered a compulsory share transfer mechanism in that agreement, or whether that mechanism did not come into effect until the contractual period for remedying the breaches expired.

In doing so, the court examined whether very serious breaches of contract – so-called “repudiatory breaches”, which give the innocent party the right to terminate the contract – can ever in fact be remedied or, rather, are “irremediable”.

The court held that material and persistent breaches will often be repudiatory in nature, but this does not mean that they cannot be remedied. Whether a breach is remediable is a question to be decided on the facts, not by reference to whether the breach is repudiatory.

The case gives rise to useful practical points when drafting a shareholders’ agreement (or, indeed, any commercial contract) and when acting on an alleged breach of contract.

Read our separate article for more on the court’s decision whether repudiatory breaches of a shareholders’ agreement were capable of remedy

Access the Court of Appeal’s decision in Kulkarni v Gwent Holdings Ltd that a repudiatory breach of contract is capable of being remedied

Break fee payable on aborted merger was not taxable as a disposal of assets

The First-tier Tribunal has held that a payment of a termination fee under a merger agreement for the potential acquisition of another company was not taxable as a disposal of an asset for UK corporation tax purposes. Under the agreement, the target agreed to pay a fee to the UK-incorporated bidder if the target switched to another bidder. The target indeed switched bidder and paid the fee. HMRC claimed that payment of the fee amounted to the “surrender” of the bidder’s rights under the merger agreement.

The Tribunal disagreed, finding that the fee was paid as compensation for the loss of the bidder’s opportunity to acquire the target, not in return for the surrender of contractual rights. This was essentially a break fee, paid to give effect to the terms of the merger agreement on termination, and not a surrender or forfeiture leading to a loss of rights. As a result, the termination fee was a capital asset, but there was no taxable disposal on the legislative basis in question.

The decision shows the importance of structuring and documenting a merger or takeover arrangement to ensure that the appropriate tax treatment will apply in the event that break fee is payable.

However, this position may be of limited application, as the Tribunal left open the question of whether a termination fee of this kind could be taxable on another basis.

Access the First-tier Tribunal’s decision in Dialog Semiconductor Ltd v HMRC [2025] UKFTT 1188 (TC) that a termination fee payable on an aborted merger was not taxable as a disposal of an asset