UK Corporate Governance Litigation: Routes & Claims

Overview

Corporate governance in the UK is shaped by a mix of hard law and soft law. The Companies Act 2006 sets out binding duties for directors, including the duty to promote the success of the company and to exercise reasonable care, skill and diligence.

Sitting alongside this are the UK Corporate Governance Code, the UK Stewardship Code, and the Listing Rules, which apply to premium listed companies on a 'comply or explain' basis. The Code itself is not directly enforceable in court, but breaches of its principles can feed into wider claims.

Litigation tends to arise when governance failures cause measurable harm: a drop in share value, a misstatement to the market, a decision that favours one group of shareholders over another, or conduct that damages the company itself. The routes available depend on who is bringing the claim, what loss has been suffered, and whether a regulator has chosen to act.

Key steps

1. Identify who has standing to bring a claim. Before any court action is contemplated, work out who has the legal right to sue. Shareholders, the company itself, regulators, and third parties such as creditors or employees all have different routes available. A wrong done to the company is generally the company's claim to bring, not an individual shareholder's, which is where derivative actions become relevant.
2. Gather evidence of the governance failure. Litigation around governance rarely turns on a single document. You will usually need board minutes, financial disclosures, correspondence, and sometimes expert evidence on market practice. Where the claim involves the UK Corporate Governance Code, the company's annual governance statement and its comply-or-explain disclosures will often be central exhibits.
3. Choose the right legal mechanism. Options include a derivative claim under sections 260 to 264 of the Companies Act 2006, an unfair prejudice petition under section 994, a just and equitable winding up petition, regulatory enforcement, or a direct contractual or tortious claim. Each has different procedural requirements, remedies, and costs risks.
4. Obtain permission where required. A derivative claim cannot proceed without the court's permission at a preliminary stage. The claimant must show that a director has breached their duties and that the claim is one a person acting in good faith to promote the company's success would pursue. This filter screens out weak or tactical claims early.
5. Consider alternatives before issuing proceedings. Governance disputes can often be resolved through shareholder engagement, mediation, or regulatory complaint without full litigation. Court action is expensive, public, and slow. Writing to the board, escalating to the FRC or FCA where appropriate, or seeking a negotiated buyout of a minority stake can sometimes achieve the same practical outcome at a fraction of the cost.

Common questions