Landmark High Court ruling confirms availability of civil remedies for criminally sanctioned Companies Act breaches

Section 292 (4) CA 06 states “A company is required to circulate the resolution and any accompanying statement once it has received requests that it do so from members representing not less than the requisite percentage of the total voting rights of all members entitled to vote on the resolution.”

Section 293 (1) CA 06 states “A company that is required under section 292 to circulate a resolution must send or submit to every eligible member submit to every eligible member (a) a copy of the resolution and (b) a copy of any accompanying statement.”

Section 293 (5) CA 06 states “In the event of default in complying with this section, an offence is committed by every officer of the company who is in default”.

The claimants commenced Part 8 proceedings seeking (i) a declaration that ESMS is required to circulate the written resolutions pursuant to sections 292 and 293 CA 06 and orders that (ii) the company circulate the written resolutions and (iii) if it fails to do so, Mr Webster as a director and officer of the company, be authorised to circulate them on behalf of the company.

The defendants resisted the claim on two grounds: firstly that the proposed written resolutions could not properly be moved because they were vexatious within section 292(2) CA 06, such that the company was not required to circulate them; and in any event, the claimants were not entitled to any relief because no civil cause of action arises in respect of a breach of sections 292 and 293 CA 06, which provide for criminal sanctions only.

The argument that the resolutions were vexatious was pursued energetically by the defendants before being abandoned shortly before trial. Issues for the trial judge were therefore:

1. Was ESMS obliged pursuant to sections 292 and 293 CA 06 to circulate the claimants’ proposed written resolutions for the appointment of an additional director of the company to eligible members?
2. If so, did the Court have jurisdiction to grant the relief sought by the claimants?

The claimants’ case was that, consistent with modern principles, it is not required to establish a civil cause of action in order to obtain injunctive relief.  Moreover, the relevant statutory provisions bestow private law rights on members of private companies, and correlative duties on the companies for the benefit of a limited class of persons, namely those members making a valid request under section 292 CA 06. It was to be inferred, therefore, that injunctions and declarations were available to enforce those provisions as a matter of statutory interpretation.

The defendants argued that section 292 Companies Act 2006 creates a new right (rather than a new remedy for an old right) and that by expressly providing for a criminal sanction for default, it implicitly excludes the power of the court to grant other relief. In addition, the fact that the CA 06 provides that a company may seek an order of the court to relieve it of the obligation to circulate a resolution, but no express right of members to seek an order requiring the company to circulate a resolution, also points towards an intention to exclude the power of the court to grant such relief. Further, while the statutory right is afforded to a limited class of persons, that is not enough on its own to make this an exceptional case where the jurisdiction of the court is not excluded.

The judge held that the core issue was how to interpret the statute. While some statutory duties protect the public interest, others create private rights, and when Parliament creates such rights, courts will generally enforce them unless clearly prevented.

Section 292 does more than impose a duty: it grants specific, property-like rights to shareholders proposing a written resolution. The accompanying criminal offence serves the public interest, not the enforcement of these private rights.

Drawing on authorities where courts inferred private rights of action despite statutory penalties, the judge noted that statutory duties protecting a defined class can give rise to civil remedies, and that criminal sanctions do not necessarily exclude civil enforcement. Cases like Black v Fife Coal, Lonrho v Shell, and Stevens v Chown support this view.

The judge concluded that section 292 clearly confers enforceable rights on shareholders and that nothing indicates Parliament intended criminal prosecution to be the sole remedy. Because criminal sanctions are slow, target directors rather than the company, and cannot ensure timely compliance, civil remedies – particularly a mandatory injunction – must be available to vindicate those rights.

The defendants conceded issue 1 at the opening of trial, but the Judge confirmed that even had they not done so, he would have determined in favour of the claimants in any event.

Satisfied that the defendants had prevented the company from complying with its statutory obligations to the claimants under sections 292 and 293 CA 06, the Court granted the declaration that the company is required to circulate the resolutions in compliance with the Companies Act.

The Court also granted an injunction requiring the company to circulate the resolutions, noting that it was “necessary and appropriate to give effect to the rights of the claimants and their interest in having those rights upheld by the performance by the company of its obligations”.

Finally, the Court granted the ancillary order enabling Mr Webster to circulate the proposed written resolutions if the company fails to do so, noting the “obdurate opposition to allowing the company to comply with its obligations hitherto displayed by the defendants”.

Richard joined the Dispute Resolution team in 2019, having previously worked at two leading civil fraud boutiques in the City.

Katie is a Senior Associate in the Dispute Resolution Team. She has a wide-ranging commercial practice with particular interest and expertise in complex civil fraud and asset tracing investigations, boardroom and shareholder disputes, and breach of contract claims, acting for both claimants and defendants.