This week:
- The Court of Appeal examines the meaning of compulsory transfer (leaver) provisions in a company's articles of association
- The FCA provides an update on its proposed approach to regulating PISCES platforms and invites prospective operators to engage with it
- The Institute of Directors has established a commission to investigate the role of non-executive directors in the UK
- The Scottish Court finds there was a good argument that an auditor appointed by a company to value a shareholder's shares owed a duty of care to that shareholder
- The Council of the EU approves a directive to delay the implementation of certain new EU sustainability-related requirements
Court interprets compulsory transfer mechanism in articles of association
The Court of Appeal has considered at what point a share transfer notice was deemed served under leaver provisions in a company's articles. Its decision would determine the amount payable for the shares in question.
Syspal Capital Ltd v Truman and another [2024] EWCA Civ 469 concerned the holding company of a group of manufacturing companies.
The holding company was owned 24% by Mr Truman and 76% by Syspal Capital Ltd. Mr Truman was a director of the holding company, as well as a director and employee of one of its subsidiaries.
The dispute revolved around the meaning of simple words – “in that capacity” – in the following article:
“If any Employee Member shall cease for any reason (including but not limited to death or termination of employment by the Employee Member or Company) to be employed as an employee, director or consultant of a Group Company (and does not continue in that capacity in relation to any Group Company) then a Transfer Notice shall be deemed to have been served … on the date of such cessation.”
On 10 October 2022, Mr Truman was dismissed as an employee of the subsidiary, but he remained a director of the holding company. On 24 May 2023, on his 65th birthday, Mr Truman retired as a director of the holding company.
A dispute arose over the date on which Mr Truman became a leaver. This would, in turn, determine the value he would be paid for his shares.
Syspal Capital argued that the words “in that capacity” referred to the specific capacity in which an Employee Member ceased to be employed. In this case, Mr Truman ceased to be employed as an employee on 10 October 2022 and did not continue as an employee of any other group company. The Transfer Notice should therefore be deemed served on that date.
At first instance, the High Court disagreed and said that Mr Truman had not become subject to the compulsory transfer provisions until he resigned as a director of the holding company. In its view, the words “in that capacity” referred to engagement as an employee, director or consultant.
Syspal Capital appealed. The Court of Appeal, however, upheld the High Court's decision.
FCA publishes update on regulation of PISCES platforms
The Financial Conduct Authority (FCA) has published an early update on its proposals for the regulation of the new PISCES framework.
The update follows the FCA's previous consultation in December 2024, in which it asked for views on various specific aspects of regulation for the new framework. You can read more about the FCA's consultation on regulating PISCES trading platforms in our previous Corporate Law Update.
PISCES (short for “Private Intermittent Securities and Capital Exchange System”) is a new framework to allow investors to buy and trade securities in public and private companies in a controlled environment away from the primary capital markets, subject to a more proportionate disclosure and market manipulation regime.
Rather than a trading venue, PISCES is a regulatory perimeter within which operators will be able to establish their own platform. Securities on a platform within the PISCES framework would trade intermittently during so-called “trading windows” set by the platform operator.
PISCES will initially operate in a financial services “sandbox” so that it can be properly assessed in controlled conditions.
Broadly, the FCA is proposing to proceed with the proposals set out in its previous consultation.
However, it is proposing certain “technical changes” to its original proposals.
One key proposed change is to the ambit of disclosures a company admitted to a PISCES platform would need to make.
The FCA had originally proposed to require all PISCES companies to disclose “core information”, including on financial information and forecasts, share schemes, directors' transactions, litigation, risks, material contracts, sustainability and major shareholders.
It is now proposing to (among other things) dispense with litigation and sustainability disclosures, remove the need for forward-looking financial information, and simplify disclosures relating to material contracts and significant financial changes.
The FCA is also minded to “clarify” its expectations of PISCES platform operators in relation to monitoring orderly trading. These includes requiring operators to put in place “proportionate controls”, including checking that participant companies' disclosures are complete.
Finally, the FCA is now inviting prospective PISCES operators who are not yet authorised to operate a platform to apply to do so, and it is inviting all prospective PISCES operators to request feedback from the FCA on their proposed operating models and draft rulebooks (which the FCA is terming “pre-application support”).
Read the FCA's update on PISCES and pre-application support for prospective PISCES operators
Commission to examine role of non-executive directors in the UK
The Institute of Directors (IoD) has established a new commission to examine the role of non-executive directors (NEDs) in the UK.
The IoD has said that the commission's work will divide into three main purposes.
- To evaluate whether NEDs are adding value to boards of directors and to corporate governance more generally.
- To identify the main challenges and obstacles that NEDs face and to consider how (and whether) they can be overcome.
- To make recommendations to boards and policy-makers concerning the more effective deployment of NEDs.
Access the landing page for the Institute of Directors' new commission into non-executive directors
Auditors appointed to value leaver's shares may have owed duty of care
The Scottish Court of Session has held that a former director and shareholder of a company had pled a good argument that the company's auditors had assumed a duty of care to him when they were appointed to value his shares.
Can a valuer be under a duty of care to a shareholder?
Coulter v Anderson, Anderson & Brown LLP [2025] CSOH 32 concerned a valuation of a leaving shareholder's shares carried out by a company's auditors under its articles of association.
The auditors had argued that the shareholder could not be said to have relied on their valuation, because, under the company's articles, he had had no choice but to accept it.
However, referring to previous case law from England and Wales, the judge found that the shareholder had put forward a cogent argument that the auditors had accepted responsibility towards the shareholder for performing the valuation properly and without negligence.
Case law in England and Wales (in particular, Killick v PwC [2001], a case with similar facts to the one before the Scottish court) has established that a valuer of shares under a mechanism in a company's articles can owe a duty of care to the person whose shares are being valued. The Scottish court drew on this case law in reaching its decision.
Can the valuer limit their potential liability to the shareholder?
The auditor argued that its liability to the shareholder should be limited to £45,000, as that was the liability cap it had negotiated in its contractual engagement by the company. The shareholder argued that it was not party to that contract and so the liability limitation did not apply to it.
The court acknowledged this but held that the liability cap was one of the factors it was entitled to consider when deciding the auditor's potential liability to the shareholder. This was in part a factor of how the shareholder had framed his case to the court, but it is important nonetheless.
The judge did, however, say that the greater the disparity between a liability limitation and the likely loss a shareholder could suffer (which will be linked to the value of the shares), the less reasonable it will be to restrict a valuer's liability to the liability limitation. This would prevent a company and valuer from agreeing a very low liability cap so as to lock out claims by shareholders.
Interestingly, the court also held that there is the potential for the Unfair Contract Terms Act 1977 (UCTA) to apply to a cap on a valuer's potential liability in negligence to a shareholder. The general effect of UCTA is that, if a limitation or exclusion of liability is unreasonable, it will not be effective.
Our thoughts on the decision
This was a Scottish case and so the decision affects Scots law, rather than the law of England and Wales. But the court drew significantly on case law from England and Wales and adopted orthodox principles, so we would expect the courts of England and Wales to give weight to its decision.
The judgment emphasises the need to consider carefully the potential consequences and disputes that can arise out of leaver provisions and compulsory share transfer mechanisms. This is relevant at various stages, including when formulating the relevant provisions, when looking to enforce them, when appointing a valuer, and if considering whether (and on what grounds) to contest any valuation.
EU approves first stage of new ESG “omnibus” proposals
The Council of the European Union has given its formal approval to the so-called “Stop the Clock” Directive, which postpones the commencement of certain ESG reporting and diligence requirements.
The Directive forms part of the EU's “omnibus” proposals, which are designed to simplify and amend key pieces of EU sustainability-related legislation.
You can read a summary of the EU's ESG “omnibus” proposals in our previous Corporate Law Update, and you can read more about the detail of the EU's ESG “omnibus” proposals in our colleagues' separate in-depth piece.
Broadly speaking, the “Stop the Clock” Directive will delay two aspects of EU ESG requirements.
- Corporate Sustainability Reporting Directive (CSRD). For those companies that are required to report in 2026 and 2027, reporting will be delayed by two years.
- Corporate Sustainability Due Diligence Directive (CSDDD or CS3D). Requirements for the first cohort of companies subject to the CSDDD (which includes non-EU companies with a net turnover of more than €1.5bn in the EU) will be delayed by one year.
The Directive will now be published in the EU's Official Journal and will come into force on the following day. EU Member States have until 31 December 2025 to implement it in their national laws.
Read the Council of the EU's press release on the new “Stop the Clock” Directive
Access the English version of the European Union's “Stop the Clock” Directive (PDF)
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