Corporate law update: 6 - 12 June

This week:

• The Court of Appeal's ruling that a right to “nominate” a person to a company’s board amounted to an ongoing right to have a person appointed as a director

• The Government intends to proceed with reforms to the regime for filing company accounts

Right to “nominate” person to board was a continuing right to appoint a director

The Court of Appeal has held that the right of a shareholder in a nomination agreement to “nominate someone to the board” of a company amounted to a right to have a specified director on the board on an ongoing basis.

What happened?

Magic Investments SA v Broadbent [2026] EWCA Civ 711 concerned a start-up home-brewing business. The company was founded by two individuals, including the respondent, who was a substantial shareholder in the company and its CEO.

In early 2021, a South African business (Magic) invested just under £1m in the company. At that time, Magic informed the company that, under South African exchange control rules, it was required to have at least one director appointed to the company’s board during the lifetime of its investment.

Magic and the company therefore entered into a letter nomination agreement, which stated: “[Magic] will be entitled to nominate someone to the board.”

Magic nominated an individual and the company appointed him as a director. However, by July 2021, that individual had resigned.

In October 2021, Magic raised with the company the question of appointing a replacement director. This generated a discussion that revealed a difference between Magic and the respondent over the meaning and effect of the nomination agreement.

Magic argued that the nomination agreement amounted to an assurance that, at all times, the company’s board would have at least one member chosen by Magic (the effect being that, if that director resigned, Magic would be entitled to appoint a replacement).

The respondent resisted, in large part motivated by a desire to ensure a suitable balance of skills on the company’s board. He argued that:

• the right to “nominate” someone to the board merely amounted to a right to propose a candidate, and not a right to actually appoint someone as a director; and

• in any event, that right could only be exercised once, and multiple times on an ongoing basis (the effect being that, if that individual resigned, Magic would no longer have an appointee).

What did the court say?

The court agreed with Magic.

The judges found that the nomination agreement gave Magic to appoint a person to the company’s board, and not merely to suggest someone for appointment. They gave four reasons, which are set out with admirable pithiness in the judgment and represent an elegant illustration of the court’s mixed approach of “textual” and “contextual” analysis when interpreting a contract.

• The Oxford English Dictionary definition of “nominate” includes both proposing or formally entering a candidate for election, as well as appointing a person by name for an office or duty.

• The nomination agreement entitled Magic to appoint someone “to the board”, not merely to appoint someone “to be considered for the board”.

• Every shareholder of a company already has an intrinsic (albeit not legally enshrined) right to suggest candidates to act as directors of the company. If this is what the nomination agreement had meant, it would have offered nothing beyond what Magic was already entitled to do.

• The company was aware of South African exchange control rules that required Magic to have one seat on the company’s board during the lifetime of its investment.

The court also said that this was a continuing entitlement and not a “one-time” right. If Magic’s right were to have come to an end should its appointee (say) die or retire, it would have been at the mercy of events outside its control and at risk of offending South African exchange control rules. This would have been contrary to the parties’ understanding at the time the nomination agreement was signed.

What does this mean for me?

This is a good illustration of how the courts will adopt a holistic and commercially grounded approach when construing a commercial arrangement.

Rather than reading the word “nominate” in a narrow and arguably literal sense, the judges took the wider commercial context of the transaction into account to understand what the parties had intended.

It is, however, important to remember that the court can embark on a process of interpreting a contract (“construction”) only if a contractual term is unclear. If the wording of a contract does not give rise to ambiguity, the courts will generally have no choice but to enforce the literal meaning.

For this reason, it is critical to ensure that rights in any arrangement, such as in this case, are set out in explicit and unambiguous terms.

If possible, parties should consider expanding on a general “principle” and giving details of how the right is to operate.

For example, for a board appointment right, the contract might explain how the right is to be exercised (e.g. by written notice to the company), state when it is exercisable and whether it is exercisable once or on several occasions, clarify any qualifications or characteristics a nominee needs to satisfy, and set out any process by which the company and the appointor might discuss that appointment.

Access the court’s decision in Magic Investments SA v Broadbent that a right to nominate a director amounted to a continuing right to have a director on the company’s board

Reforms to company accounts to go ahead

The Government has confirmed, in a written ministerial statement, that it intends to proceed with reforms to the UK’s company accounts regime legislated for in the Economic Crime and Corporate Transparency Act 2023.

The reforms were originally scheduled for April 2027 but, following concerns about their impact on businesses, the Government paused implementation to engage with stakeholders.

The statement confirms that the reforms will now be implemented in April 2028. By way of reminder, the reforms include the following points.

• Smaller companies will no longer be able to file “abridged accounts”.

• Small companies and micro-entities will need to file a profit and loss account with Companies House. However, they will be able to request that it is now displayed on the public register. HMRC and law enforcement agencies will still have access to this information.

• All companies will be required to file their accounts in electronic form using software in iXBRL format.

• Companies that benefit from an exemption from audit will need to include a statement in their accounts confirming the basis on which the exemption applies.

In addition, the Government is intending to bring forward secondary legislation to reduce the number of times a company can shorten its accounting reference period.

Read the Government’s ministerial statement on the implementation of company accounts reforms

Read Companies House’s updated guidance on preparing and filing Companies House accounts

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