Corporate Law Update – Saturday 29 July to Friday 4 August 2023

The High Court has once again dismissed ClientEarth’s attempt to bring a derivative claim against the directors of Shell plc.

ClientEarth, a minority shareholder in Shell plc, had alleged that Shell’s directors had failed to take appropriate action within Shell’s business to address climate change. It attempted to bring proceedings against those directors, on behalf of Shell plc, through a derivative claim.

The judge dismissed ClientEarth’s application in May 2023. ClientEarth requested the court to reconsider that decision at an oral hearing. The court has now done this and reached the same conclusion, namely that the application should be dismissed.

This second judgment is principally a consolidation and repetition of the court’s initial judgment, and so we will not report on it again in detail, save to note that this once again demonstrates the difficulties shareholders will face in bringing direct claims against directors in relation to climate targets.

The Court of Appeal has dismissed an attempt by two members of a pension scheme to bring proceedings against the directors of the pension scheme’s corporate trustee for alleged breaches of duty, including in relation to improper investment in fossil fuels.

Normally, members of a company can seek to bring proceedings against the company’s directors for breach of duty under a statutory “derivative claim”. However, in this case, the corporate trustee was a company limited by guarantee whose only members were its directors themselves.

In McGaughey v Universities Superannuation Scheme Ltd [2023] EWCA Civ 873, the pension scheme members attempted instead to bring proceedings through a so-called “multiple derivative claim”. This type of claim can allow a person who is not a member of a company to bring proceedings against that company’s members.

However, to bring a multiple derivative claim, the claimant must show both that the company in question (in this case, the corporate trustee) has suffered some kind of financial loss and that the claimant has also suffered a loss which reflects the company’s loss.

In addition, in the particular circumstances of this case – where the claimants were alleging that the directors had committed a “fraud on the minority” – they needed to show that the directors had gained some kind of improper benefit.

In this case, the claimants failed in multiple cases to demonstrate that either the corporate trustee, the pension scheme as a whole or they as individual members had suffered any loss. They also failed to show that the directors had gained any improper benefit.

Although the circumstances are quite different from those of ClientEarth (see above), this case again shows the difficulty in challenging decisions of a company’s directors, including in relation to climate-related matters. It will also give comfort to directors that, provided they act in good faith, they can take decisions based on their reasoned judgment.

The Financial Conduct Authority (FCA) has published Handbook Notice 111, confirming that it is proceeding with reforms to the requirement for certain UK issuers to prepare their annual accounts and reports using structured digital reporting formats.

We reported on the proposed reforms in January 2023, noting that the only change of substance would require issuers subject to the regime to use a “generally accepted taxonomy” when tagging IFRS consolidated annual financial statements.

In addition to this, the rule changes will allow issuers to tag other parts of their annual financial report using any taxonomy specific to those parts.

The new rules apply to financial years beginning on or after 1 January 2022.

The UK Government has published information on its framework to create sustainability disclosure standards for the UK (UK SDS).

UK SDS will set out disclosures on the sustainability- and climate change-related risks and opportunities that UK companies will, in due course, be required to make. They will be based on the IFRS Sustainability Disclosure Standards published by the International Sustainability Standards Board (ISSB) in June 2023.

The Government has confirmed that it will consider endorsing the IFRS Sustainability Disclosure Standards so as to create UK SDS by July 2024 and will divert from the global baseline only if absolutely necessary for UK-specific matters.

The requirements are separate from the proposed reporting standards under the EU Corporate Sustainability Reporting Directive (CSRD), which may affect some UK companies in due course. For more information on those standards, see the next item below.

The European Commission has formally adopted legislation setting out the first EU sustainability reporting standards (ESRS), along with a Q&A document.

The ESRS will apply to all undertakings that are subject to the EU Corporate Sustainability Reporting Directive (CSRD).

CSRD will come into effect in stages, beginning in 2024 for companies already subject to the EU’s Non-Financial Reporting Directive (NFRD). From 2025, it will apply to large companies that are not currently subject to the NFRD and, from 2026, to listed small and medium-size enterprises (SMEs), small and non-complex credit institutions and captive insurance undertakings.

CSRD will not apply in the UK but will affect UK companies with securities listed on an EU-regulated market. In addition, from 2028, it will also affect UK companies that generate net turnover in the EU above €150m and have a large subsidiary or branch, or a listed subsidiary, in the EU.

The detailed content requirements are set out in two Annexes to the legislation. Annex I contains general disclosures, alongside specific environmental, social and governance disclosures. Annex II contains a glossary of terms used within the ESRS.

The legislation, which is not yet final, will now pass to the European Parliament and Council to review.

The London Stock Exchange has published its dividend procedure timetable for 2024.

The timetable sets out a series of ex-dividend dates with their corresponding record dates and the dates on which a listed company or AIM company is to announce the dividend. It also sets out certain content requirements for the company’s dividend announcements.

Companies that adhere to the timetable do not need to notify the Exchange of their programme in advance. However, dividends that fall outside the parameters set out in the timetable must be discussed and agreed in advance with the Exchange.

Apart from dates, the 2024 timetable is broadly the same as the 2023 timetable, although it now clarifies that a dividend announcement should state the currency in which the dividend will be paid.