Re Klimvest plc

Minority shareholders in plcs will welcome a judgment handed down this morning which has broadened their options.  For the first time in this jurisdiction, the Court has ordered the winding up of a listed plc on the just and equitable ground under section 122(1)(g) of the Insolvency Act 1986 for loss of substratum.  In a reserved judgment following a two-week trial in February 2022, in Re Klimvest plc [2022] EWHC 596 (Ch) the High Court clarified and modernised English law in line with more recent Australian authorities. HH Judge Cawson KC (sitting as a High Court Judge) held that the identification of a company’s purpose or substratum is a matter of equity between the company – even a listed plc – and its shareholders, rather than a formalistic exercise in construing the corporate constitution.  The purpose is lost, potentially triggering winding-up by the Court, not only where carrying it out is “practically impossible” for the company, but also where it has been, or will be, abandoned.  Judge Cawson KC applied the dictum of Jenkins J in Re Eastern Telegraph Co., Ltd [1947] 2 All ER 104 that “if a shareholder has invested his money in the shares of the company on the footing that it is going to carry out some particular object, he cannot be forced against his will by the votes of his fellow shareholders to continue to adventure his money on some quite different project or speculation”.

Judge Cawson KC also analysed whether, as a matter of law, equitable or ‘quasi-partnership’ constraints on the exercise of shareholders’ legal rights can ever arise in a public listed company, or whether as Jonathan Parker J had held in Re Astec (BSR) plc [1999] BCC 59, “the concept of ‘legitimate expectation’… can have no place in the context of public listed companies”.  Without determining whether Re Astec had been correctly decided, Judge Cawson KC commented that “on appropriate facts, equitable considerations might arise as between shareholders in a public listed company”.  While this would be “a rare event”, “there might, conceivably, be circumstances where the existence of those equitable considerations might found the basis for some limited form of relief under Section 996 of the Companies Act 2006”.

Daniel Lightman KC and Max Marenbon represented the successful petitioner, instructed by Tamar Halevy of Marriott Harrison LLP.

To read the judgment, please click here.