Margaret Anne Ryan & Anor v HSBC UK Bank Plc & Anor

The claimants sought permission under section 261 of the Companies Act 2006 to bring derivative proceedings on behalf of MCPLC, principally alleging that HSBC acted as a shadow director and pursued a plan (described as the "LMU Purpose" or "Creditor Turnaround") to run down the business to protect HSBC's own interests. The court applied the statutory gatekeeping tests in sections 261, 260, 251, 261(2) and 263 of the Companies Act 2006, including the mandatory refusal ground in section 263(2)(a) and the wider discretionary factors in section 263(3).

The judge carried out a document-led assessment of the competing narratives, placing weight on contemporaneous documents (credit memoranda, board minutes, BDO and Project Wales reports) against the claimants' witness statements. The court found the LMU Purpose and shadow director allegations to be speculative and lacking essential factual particularity; the contemporaneous documents were inconsistent with the claimants' overarching theory. The judge also noted HSBC's position as MCPLC's principal creditor with significant, largely irrecoverable exposure.

For these reasons the court concluded that no director acting in accordance with section 172 would continue the proposed derivative claim and that permission must be refused. The application for permission was dismissed.

Background and procedural posture: This was a first instance application for permission under section 261 of the Companies Act 2006 to bring derivative proceedings by two former managers/shareholders (the claimants) on behalf of MCPLC (the nominal claimant) against HSBC (the bank). The claimants advanced a proposed re-amended particulars of claim alleging, among other things, that HSBC acted as a shadow director and pursued an objective to manage the company down for the bank's benefit. The application was opposed by HSBC; MCPLC was not represented.

Nature of the relief sought:

• Permission to bring derivative claims under the Companies Act 2006 (section 261) against HSBC, alleging breaches of duties by directors and shadow directors (including declaration that HSBC acted as a shadow director).
• Personal claims by the claimants for misrepresentation, negligence, unlawful means conspiracy and unfair relationship in respect of a personal £10 million loan.

Issues framed by the court:

• Whether the application and evidence disclose a prima facie case (section 261(2)).
• Whether a director acting in accordance with the duty in section 172 would seek to continue the claim (mandatory refusal under section 263(2)(a)).
• If not dismissed on that basis, whether permission should nonetheless be refused under the discretionary balancing exercise in section 263(3), taking account of factors such as strength and importance of the claim, cost, company resources and the creditor position.

Facts and evidence considered: The judge summarised the parties' competing narratives and examined contemporaneous documents placed before the court by HSBC: HSBC credit memoranda, board minutes, a BDO report, Project Wales business plan and other correspondence. The claimants relied on witness statements and alleged that management had been transferred to HSBC's Loan Management Unit (LMU), that HSBC used the personal loan and appointments (including of a CEO, ME) to obtain control, and that HSBC advanced a "Creditor Turnaround" or "LMU Purpose" to wind the business down.

Court's reasoning:

• The court reiterated governing law: derivative claims are limited to causes of action for director breaches (section 260), shadow directors are treated as directors (section 260(5)) and a "shadow director" is defined by section 251.
• The judge gave weight to contemporaneous documents over later recollection where relevant, and treated the credit memoranda and board minutes as showing a bank balancing its own interests while attempting to support the business rather than operating a clandestine plan to destroy it.
• The "LMU Purpose" allegation and the shadow director case lacked the essential factual particularity needed at the permission stage; many pleaded inferences were inconsistent with the documents before the court.
• The prospective quantum of any derivative claim was speculative and not linked to particular breaches and causation. The presence of a large creditor exposure by HSBC (about £20m) and the risk that pursuing litigation could exacerbate that position weighed against permission.
• The "unusual circumstances" argument (that MCPLC had nothing to lose so a notional director would pursue the claim) was rejected as inconsistent with the statutory test which requires positive reasons to continue.
• The judge noted that while dismissals at this initial stage are unusual, the combination of weak, speculative claims and HSBC’s status as the company’s principal creditor justified refusal under section 263(2)(a) (and, alternatively, under section 263(3)).

Subsidiary findings and other matters: The court did not need to resolve issues about the claimants' ability to fund adverse costs in any detail because MCPLC had no assets and permission was refused on merits. The court rejected the contention that MacPherson v European Strategic Bureau supported the claimants’ theory in this case.

Conclusion: The application for permission to bring derivative proceedings was dismissed because no director acting in accordance with section 172 would seek to continue the claim: the claim was weak, speculative and inconsistent with the documentary record, and pursuing it would not be in MCPLC’s interests given HSBC’s creditor position.

The application for permission to bring derivative proceedings under section 261 of the Companies Act 2006 is dismissed. The court held that the proposed derivative claim was speculative and lacking essential factual particularity; contemporaneous documents undermined the claim that HSBC acted as a shadow director pursuing a deliberate "LMU Purpose"; HSBC’s position as MCPLC’s principal creditor and the speculative quantum made it irrational for a director acting under section 172 to continue the claim. Accordingly permission is refused under section 263(2)(a) (and alternatively under section 263(3)).