Corporate Law Update: 1 - 7 April 2023

06 April 2023

In this week's update:

Court interprets meaning of “material adverse change” warranty

The High Court has held that sellers of the shares in a company breached a warranty that there had been no material adverse change (MAC) in the company’s prospects. In doing so, the court provided valuable guidance on how MAC warranties are likely to be assessed.

Decision Inc Holdings Proprietary Ltd v Garbett [2023] EWHC 588 (Ch) concerned the sale by two individuals of the shares in an IT consulting company to a corporate buyer.

The sellers warranted that “[since] the Accounts Date … there has been no material adverse change in the turnover, financial position or prospects of the Company”.

Following completion, it became clear that the company’s prospects were worse than feared. The buyer notified the sellers that there had been a breach of warranties in the SPA, including the forecast warranty above.

The buyer and the sellers subsequently agreed the final figures for the business for the year after completion, which showed a very significant loss.

The buyer brought a claim for breach of warranty. In particular, it alleged that there had been a material change in the company’s prospects since its last accounts date, in breach of the warranty above.

In deciding whether the warranty had been breached, the court had to assess how a material adverse change in prospects was to be measured. The judge adopted the following approach:

  • Establish the “baseline” position (what had been forecast in terms of prospects when the parties signed the SPA).
  • Establish the actual position (what the company’s actual prospects were on the date on which the parties signed the SPA).
  • Assess whether the difference (if any) is “material”.

The court also took the following approach:

  • Deciding the “baseline” required an “objective test”. The question was what a reasonable buyer and reasonable sellers would have agreed to be the most likely baseline over the period concerned.
  • The purpose of comparing baseline and actual figures was to decide whether there had been a change in prospects. This was not the same as calculating the damage (if any) which the buyer has suffered. Calculating damages was a separate exercise, and it was perfectly possible for a comparison to show that there had been a breach of warranty, yet for the buyer not to have suffered any recoverable loss.
  • The word “material” is “an ordinary English word, and its application to a set of primary facts is itself a question of fact”. In other words, “material” will have a different meaning in each case, depending on the surrounding circumstances.
  • In this case, the test was whether the buyer would have entered into the transaction, either at all or on significantly different terms, if it had known about the difference (i.e. the adverse change since the accounts date). Again, this was an objective test based on what a reasonable buyer would have done.

Applying these principles, the court found that there had been a material adverse change and the warranty had been breached.

You can read more about the case in our separate in-depth piece.

PLSA publishes 2023 Stewardship and Voting Guidelines

The Pensions and Lifetime Savings Association (PLSA) has published its stewardship and voting guidelines for 2023.

The key changes to the guidelines since the previous version include the following.

Executive remuneration

The PLSA calls on companies to exercise restraint during the cost-of-living crisis. It also notes growing demand for alignment between remuneration and wider sustainability targets and expects to see this reflected in voting policies.


A new section of the guidelines covers various aspects of the workforce, including physical wellbeing, mental health and menopause, human rights and modern slavery, and diversity and inclusion (D&I). The new section sets out examples of good company behaviour and new voting recommendations (see below).


The PLSA recommends voting against approving a FTSE 350 company’s annual report and accounts if the company does not have a formal approach to workplace wellbeing disclosure (including mental health management and disclosure) or if, after engaging with the company, there is insufficient progress on wellbeing activities disclosures.

Modern slavery

The PLSA recommends voting against approving a FTSE 350 company’s annual report and accounts if the company fail to address the legal minimum requirements of the Modern Slavery Act.

It also recommends voting against the re-election of the responsible director if a company is highly exposed to modern slavery risks or has confirmed a modern slavery incident but fails to demonstrate an adequate risk management and a willingness to change its approach.

Human rights

The PLSA recommends voting against the re-election of the responsible director if a company does not adopt sufficient measures to prevent, monitor, mitigate or remediate negative human rights impacts within its operations.


The PLSA endorses the new targets set by the FTSE Women Leaders Review and the Parker Review but urges issuers to embed better practices to promote D&I of all protected characteristics. It notes that best practice will involve disclosure on the diversity of the board on a “comply or explain basis,” including a clearly defined process for developing board diversity.

The PLSA recommends that investors consider voting against the re-election of the Chair and the Chair of the Nomination Committee if a company consistently fails to move closer to the targets set by the Financial Conduct Authority in its Listing Rules or the board consistently fails to show movement towards what the PLSA recommends for good company behaviour.


The increased move to home-working prompted by Covid-19 has increased cybersecurity risks. The PLSA reminds companies to manage cyber threats appropriately.

Climate change

The PLSA notes a growing view among its members that their investments should include credible Net Zero transition plans. Alongside its existing list of questions for investors to consider when voting on “Say on Climate” resolutions, the PLSA recommends that investors consider whether the company’s plans are underpinned by credible targets. It notes that, ideally, plans should reflect an established industry framework and be in keeping with the UK Transition Plan Taskforce (TPT) guidance.

Social factors

The PLSA encourages companies to consider social factors in all activities, including ensuring that products and services do not pose safety risks and minimising the exposure to geopolitical conflicts in their supply chains.


The PLSA encourages all pension schemes and asset managers to consider becoming signatories to the Financial Reporting Council’s Stewardship Code. In particular, it encourages asset managers to assess culture and values in their selection processes and stewardship incorporation in their entire investment process.

Virtual AGMs

The PLSA recognises the use of virtual meetings in exceptional circumstances. However, outside of these exceptional circumstances, it says meetings should allow for in-person attendance and should not be held virtually alone, as it feels this erodes shareholders’ ability to hold the board to account.

Takeover Panel to implement changes to Takeover Code

The Takeover Panel has confirmed that it will be implementing changes to the Takeover Code following two consultations it launched in October 2022.

Offer timetable in a competitive situation

In the first consultation (PCP 2022/3), the Panel proposed to amend the Code to clarify how an offer timetable would apply in a competitive offer situation where one offeror is proceeding by way of a contractual offer and another offeror proposes to implement a takeover by way of a scheme of arrangement.

In its response statement (RS 2022/3), the Panel has confirmed that it will be proceeding with the amendments proposed in its consultation, subject to very minor modifications. The Panel has published the relevant implementing instrument (2023/1).

The Panel has also confirmed that it will be considering certain comments raised in response to the consultation (where a target board seeks sanction for a scheme of arrangement in a competitive situation) as part of its general review of Rule 21 of the Code (which prohibits parties to an offer from taking action that may “frustrate” an offer) later in 2023.

Miscellaneous amendments to the Takeover Code

In its second consultation (PCP 2022/4), the Panel proposed miscellaneous amendments to the Code. You can read more about the proposed amendments in our previous Corporate Law Update.

In its response statement (RS 2022/4), the Panel has confirmed that it will be proceeding with the amendments proposed in its consultation.

However, the Panel has also acknowledged concerns relating to its proposed amendment to require the board of a target company to give its view on the action shareholders should take where a bidder has put forward “alternative offers”.

This might include where a bidder makes a cash offer but gives target company shareholders the option to take securities (e.g. shares in the bidder) in place of cash, but the board is unable to recommend a particular course of action because the choice will depend on the individual circumstances of each target company shareholder.

In response to this, the Panel has confirmed the following.

  • In these circumstances, the board of a target company will be able to issue a statement that the appropriate action a shareholder should take will depend on “various factors and their particular circumstances”.
  • The Panel has prepared example wording that a target company board could use for this purpose in four specific scenarios.
  • A “mix-and-match” facility (where target shareholders can vary the amounts of cash and securities they receive under an offer) is not an “alternative offer”, and so the board of the target company will not need to provide a view on how shareholders might fix their election under the facility.

The Panel has published the relevant implementing instrument (2023/2).

The amendments to the Code following both consultations will take effect on 22 May 2023.

Government publishes updated Green Finance Strategy

The UK Government has published an update to its Green Finance Strategy, which it originally released in 2019.

Among other things, the updated Strategy confirms the following:

  • The Government will consult later in 2023 on requiring the largest companies to publish their net zero transition plans.
  • It will also consult in autumn 2023 on proposals for a UK green taxonomy.
  • It will continue to assess whether the global sustainability disclosure standards that are being prepared by the International Sustainability Standards Board (ISSB) are suitable for the UK.
  • It intends to publish a call for evidence on reporting scope 3 greenhouse gas emissions. (Scope 3 emissions currently fall outside the scope of the UK’s mandatory reporting regimes.)