Corporate & Shareholder Disputes
What we saw in 2023
ESG shareholder activism In the shareholder dispute of the year, ClientEarth, the owner of a de minimis shareholding in Shell, brought proceedings alleging that the oil giant’s board members had breached their directors’ duties by failing to prepare the company properly for the transition from fossil fuel to clean energy. The court refused to impose specific climate related considerations on the directors, noting that it was difficult in the absence of a universally accepted approach to climate change action to conclude that the directors had failed to use reasonable skill and care to determine how to promote the success of their company. The court also noted that ClientEarth was pursuing its own policy agenda and was not acting in good faith with the interests of the company primarily in mind.
Uptick in contentious exits from founder-led companies The prospect of rapid advancement in AI and other booming industries prompted a significant uptick in forced exits, as investors and management teams sought to seize greater control and maximise their stake in growing businesses.
Courts trying to rein in shareholder disputes The Courts sought to manage “sprawl” in unfair prejudice petitions. Unfair prejudice petitions are notoriously document-heavy and expensive, which is a common theme of judicial frustration. The Court of Appeal has pushed back against bloated claims, and this year we have seen the courts attempt to strike a balance between hearing relevant allegations and preventing disproportionality.
2024 trends and insights
Investors will take a more aggressive approach to warranties, earn-outs and founder participation. Following a short dip in investment activity in 2020, the resultant pent-up demand led to a high level of mid-market M&A in 2021 and saw deals being negotiated rapidly with less comprehensive due diligence. There is unusual potential for buyers’ remorse, leading to renegotiations and challenges to founder involvement and earn-outs. We also anticipate an increase in warranty claims, as we hit the 12, 24 and 36-month deadlines for claims under warranties given in the last couple of years.
Derivative actions will continue to shed light on directors’ duties in the context of ESG issues. Claims by sophisticated not-for-profit activists such as ClientEarth will provide a forum for the court to explore the evolving boundaries of directors’ duties in relation to ESG issues. However, activists may find it difficult to secure funding, unless they can show that the companies they are representing have suffered a loss as a result of the board’s actions. Without the prospect of a substantial return from a damages award, third party funders are likely to lose interest and activists may turn to crowdfunding.
Uncertainty around AI will lead to post-completion and warranty disputes in tech companies. Warranties given by vendors of tech companies will be judged against a rapidly evolving regulatory environment. This brings significant uncertainty to a company’s future compliance and performance and creates potential for gaps between SPA warranties and W&I insurance.
Corporate & Shareholder Disputes
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