UK Law and Practice Contributed by: Gareth Sykes, James Palmer, Isobel Hoyle and Hannah Whitney, Herbert Smith Freehills Kramer
very few examples of virtual-only meetings (that is, a shareholder meeting held exclusively through the use of online technology, with no physical meeting) or hybrid shareholder meet - ings (that is, a physical shareholder meeting with the option for electronic participation through the use of online technology). Whilst certain relaxations were accepted during the COVID-19 pandemic, these relaxations no longer apply and, in the absence of such relaxa - tions, there are questions as to the validity of virtual-only shareholder meetings under English law. Investor bodies, such as the Investment Association, have expressed concerns over virtual-only meetings. These bodies are gener - ally more amenable to hybrid meetings, though there are practical issues with hybrid meetings which limit their popularity with companies. In all instances, companies are required to comply with the provisions of their articles of association in relation to proceedings at shareholder meet - ings. Many companies have therefore amended their articles of association in order to facilitate the holding of hybrid shareholder meetings should the need for such flexibility arise again in the future. In October 2024, the Department for Business and Trade (DBT) announced that it will carry out a review of shareholder communica - tions in light of emerging technologies and to clarify the legal framework surrounding virtual AGMs. 5.4 Shareholder Claims As noted in 4.8 Consequences and Enforce- ment of Breach of Directors’ Duties , as a gen - eral rule, a company is the right person to bring a claim against one of its directors for breach of duty, since the duty is owed to the company. However, the Companies Act contains a statu - tory procedure under which a shareholder may bring a derivative claim – that is, proceedings
on behalf of a company – against a director for negligence, default, breach of duty or breach of trust. The factors that the court will look at when decid - ing whether to allow a derivative claim include whether a director who is acting to promote the success of the company would proceed with it, whether the relevant act or omission was previ - ously authorised by the company, whether the breach has been ratified, and the views of inde - pendent shareholders. In addition, shareholders can apply to the court for protection against unfair prejudice if they believe the company’s affairs are being or have been conducted in a manner that is unfairly prej - udicial to the interests of its members or a group of its members. Claims against the company may also arise if a publicly traded company does not behave prop - erly in relation to the treatment of the release of information to the market. In particular, under Section 90A of the FSMA, a company may be liable to pay compensation to a person who acquires, continues to hold or disposes of the company’s securities in reliance on information disclosed by the company using recognised means and who suffers loss in respect of the securities as a result of either any untrue or mis - leading statement in that published information, or the omission from that published information of any information required to be included in it. The company is only liable, however, if a person discharging managerial responsibilities knew that the statement was untrue or misleading, or was reckless as to whether it was, or knew the omission was a dishonest concealment of a material fact.
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