Shareholders can secure injunction to force circulation of written resolutions
Shareholders can secure injunction to force circulation of written resolutions
Deadlock in the boardroom is frustrating at best, and it can cripple ongoing business operations if not promptly resolved. Breaking deadlock may not always be straightforward, but a recent decision provides important clarity on the potential remedy available where a workable solution is resisted without good reason.
The High Court ruled, in Webster v ESMS Global Ltd [2025] EWHC 3107, that shareholders have a right, enforceable by way of an injunction, to require written resolutions to be circulated under the Companies Act 2006.
Simon and Jennifer Webster were the directors of the defendant company. Together, they owned or controlled 47.6% of the company shares. Mr and Mrs Sood (also defendants) were also directors and owned/control another 47.6% of the shares.
Importantly, a trust company (‘Trident') held the remaining 4.8% shares on trust for the company's employee benefit trust.
Unfortunately, the relationship between the directors broke down and there was shareholders/director deadlock. The articles included provisions for resolving shareholder deadlocks, but these did not resolve matters and even gave rise to further deadlock.
The Websters wanted a further, independent director appointed and requested the company to circulate its proposed written resolution for the appointment under s292 Companies Act. A written resolution meant Trident could vote on it under its trust deed (it did not have the legal right to vote at a general meeting of the board).
However, Mr and Mrs Sood refused to sign a written board resolution authorising circulation of the proposed written resolutions, so the Websters commenced proceedings. The Soods said the claim was vexatious and the company was not required to circulate the written resolutions.
The judge allowed the Webster’s claim in full, recognising that they have positive private rights as shareholders against the company under ss292-293 for failing to circulate draft resolutions which they propose. This private right is “a property right forming part of the bundle of rights which come with being a shareholder”.
While there is a potential criminal penalty under s292 if the company fails to comply – that is for the purpose of protecting public rights, not private rights. The granting of relief for breach of private rights is not excluded.
The judge ruled that the Soods had prevented the company from complying with its statutory obligations to the Websters, and so the Court granted injunctive and declaratory relief as requested.
What does this mean?
This decision demonstrates there is a potential way through deadlock in the boardroom; and resisting attempts to move forward could breach the private rights of other shareholders.
It also clarifies that a general meeting can be avoided if necessary, for example, if time is of the essence, practicalities are an issue, or where relationships are particularly tense.
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