Staying Neutral - UK Supreme Court Re-emphasizes Primacy of Board Neutrality When Battles for Corporate Control Arise
March 21, 2016
However, directors of UK companies are subject to a duty to act for proper purposes, which has been interpreted by UK Courts as requiring strict board neutrality when battles for corporate control arise. The UK proper purposes duty would for instance likely prohibit directors of UK companies from taking actions permitted under the Delaware Unocal principles, such as the establishment of a poison pill in response to an unsolicited offer which posed a threat to corporate policy.
In an important recent case - Eclairs Group v JKX Oil and Gas - the UK Supreme Court re-iterated the primacy of board neutrality when battles for corporate control arise. In this case, the Supreme Court applied the proper purposes duty to invalidate certain actions taken by the board of a company subject to an alleged corporate raid to disenfranchise the voting rights of the alleged corporate raiders. This was despite the fact that:
- the directors genuinely believed that the alleged raid was deceitful, subversive and harmful to shareholders; and
- the directors had a basis to believe that the alleged raiders had not properly responded to requests issued by the company requiring the alleged raiders to disclose the nature of their interests in the company.