Business Toolkit: Avoiding Shareholder/Boardroom Issues and Protecting Your Business

Rising Risks in Boardroom Governance

UK courts delivered landmark rulings in 2025 that have tightened accountability for directors and reshaped the landscape for shareholder disputes. In Saxon Woods Investments Ltd v Costa, the Court of Appeal rejected a director's 'honest belief' that actions served the company's interests as a complete defence when those actions misled the board and triggered breaches of shareholders' agreements. This decision signals greater judicial willingness to impose personal liability on directors for failures in transparency and fiduciary duties.

Concurrently, the Privy Council in Jardine Strategic Ltd v Oasis Investments abolished the longstanding 'shareholder rule', which had prevented companies from asserting legal professional privilege against their own shareholders. Companies can now protect sensitive legal advice from disclosure, potentially complicating minority shareholders' ability to challenge board decisions but also reducing a tool previously used to escalate internal conflicts.

These developments coincide with broader governance pressures. The 2024 UK Corporate Governance Code, with key provisions like material controls declarations effective for financial years from January 2026, demands stronger board oversight and reporting. Shareholders appear more prepared to pursue unfair prejudice petitions under section 994 of the Companies Act 2006 when they perceive mismanagement or exclusion.

For private companies and SMEs—often lacking sophisticated governance structures—the stakes involve not just litigation costs, which can run into hundreds of thousands of pounds, but also business disruption, strained relationships, and potential forced buyouts or windings-up. Deadlocks in family firms or closely held businesses have prompted court interventions, as seen in cases where judges enforced shareholder resolution circulation rights to break impasses.

A non-obvious tension lies in the trade-off: while reforms empower companies to guard confidential advice, they may fuel distrust among shareholders who feel information asymmetry widens, prompting more aggressive challenges elsewhere, such as derivative actions or exit mechanisms in articles of association. Economic uncertainty and post-pandemic recovery strains in sectors like those represented by regional chambers amplify these risks, as stressed businesses face more internal friction over strategy and resource allocation.