Corporate Law Update

• The court re-examines the scope of an express duty of good faith in connection with an equity investment in a company
• The FCA cancels a company’s listing due to its “fundamentally uncertain” situation
• The Law Society and CLLS publish an updated note on executing documents electronically

Court re-examines the scope of an express duty of good faith

The Court of Appeal has held that an obligation in a shareholders’ agreement to act in good faith did not prevent the majority shareholders of a company from removing its directors.

Re Compound Photonics Group Ltd [2022] EWCA Civ 1371 was an appeal from an earlier decision of the High Court, in which the court found that two founders suffered unfair prejudice when they were excluded from the business of a company, and one of them also suffered unfair prejudice when he was removed as a director. You can read more about the High Court’s decision in our previous summary.

Overturning the High Court’s decision, the Court of Appeal held that an express requirement for majority investors to act in good faith did not prevent them from exercising their power as shareholders to remove the founders as directors of a company or, therefore, amount to unfair prejudice.

You can read more about the decision in our in-depth review.

FCA cancels listing due to issuer’s “fundamentally uncertain” situation

The Financial Conduct Authority (FCA) has cancelled the listing of Umuthi Healthcare Solutions plc, the UK holding company of a South African-based healthcare business.

The FCA has given the following reasons for the cancellation:

• the supply of Umuthi’s shares is “fundamentally uncertain”. It has not provided an adequate account of when and how shares were allocated to shareholders on admission and there is an ongoing public dispute over the existence of certain shares;
• its financial position is fundamentally uncertain. It has had to correct published financial information on two occasions and failed to post yearly and half-yearly results when required;
• the FCA has given it a reasonable period to resolve these issues and explain the situation but now sees no realistic prospect of it doing so. Adequate systems and controls and timely responses are an important part of continuing obligations for listing;
• the most recent suspension of its shares has been in force for more than 12 months and the shares have been suspended in total for all but two weeks since being listed.

It is rare for the FCA to cancel a listing outright, and this is indeed an unusual set of circumstances. The FCA will always consider the interests of the issuer’s shareholders before cancelling a listing, as, by doing so, it will be depriving them of a ready market for their shares.

However, ultimately, the FCA will cancel a listing where the market is jeopardised or it is necessary to protect investors, particularly if, as in this case, there is no prospect of a suspension being lifted.

Law Societies publish updated note on electronic execution of documents

The Law Society and the City of London Law Society have published an updated note on executing documents using an electronic signature.

The note has been updated to reflect developments since 2016, including the Law Commission's recent report on electronic execution, changes in practice adopted by HM Land Registry and HM Revenue & Customs and the more widespread use of e-signing platforms.

The note replaces the Societies’ previous note on the topic, published in July 2016. The Societies have published a mark-up showing the changes for ease of reading.

The note will be of use to legal advisers (both in-house and in private practice), but also compliance officers, contract managers and others who regularly supervise document signature and execution.