Hikari Miso (UK) Limited v David Knibbs & Ors

A carefully drafted shareholders’ agreement may reserve defined areas of company activity to shareholder approval, even though day-to-day management remains with the board. A shareholder holding the necessary blocking percentage may exercise that veto in its own interests, unless the agreement clearly provides otherwise.

A nominee director must act within the company’s permitted scope of activity. A vetoed Reserved Matter remains outside that scope, so the director does not breach duty by preventing the company from pursuing it. Shareholder approval enlarges the permitted scope but does not direct the directors to act.

Where a Business Plan specifically provides for a particular financial liability or capital acquisition, later approval is not required for associated implementation and financing arrangements.

The claimant and defendants were shareholders of R&R Tofu Ltd and parties, with the company, to a Subscription and Shareholders’ Agreement. The agreement identified Reserved Matters which the company could not undertake without 70% or 75% shareholder consent. The claimant held 32.8% and therefore had an effective veto.

The parties disputed how consent could be manifested, whether shareholders and nominee directors were constrained in exercising their powers, which activities were Reserved Matters, and whether alleged breaches triggered compulsory buy-out rights. The court also considered alleged failures concerning dividends, external finance, employment, capital expenditure, legal advice and hire-purchase arrangements.

1. Reserved Matters and veto. The SSA’s wording gave the requisite shareholders, including HMUK, a right to veto activities falling within Schedule 3. The power could be exercised in the shareholder’s own interests. Clause 6.2 provided alternative means of deemed consent, including approval by the relevant nominee director at a board meeting and action specifically provided for in an approved Business Plan.
2. Effect of consent and veto. A later approval by the vetoing shareholder’s nominee director could amount to deemed consent, but a board vote could not override the veto unless the conditions in Clause 6.2(a) were met. A shareholder was not obliged to procure that its nominee director approve a Reserved Matter which the shareholder had not approved.
3. Directors’ duties. The scope of the directors’ powers was limited by the SSA. If shareholders had vetoed a Reserved Matter, the directors were required to ensure that the company did not pursue it, even if an unconstrained board might have considered the activity beneficial. If shareholders had consented, that consent merely enlarged the company’s permitted sphere; the directors still had to decide independently, in accordance with their statutory and common-law duties, whether the activity should proceed.
4. Specificity and classification. An action was specifically provided for in a Business Plan where shareholders were put on clear notice of the relevant role, acquisition or liability and its financial envelope. Approval of a capital acquisition included the necessary associated financing. Individual capital items under £100,000 were not aggregated merely because they formed part of a wider expansion plan or were presented together. Advice obtained by the managing director on how the company should comply with the SSA was within the ordinary course of business.
5. Applications and outcome. HMUK and Mr Hayashi had not breached the SSA or their duties. Mr Eastwood’s appointment involved, at most, a technical breach, which was not material. No material breach or Buy-Out Event was established. The alleged Strategy of Disruption was not proved. The court made the declarations set out in its summary of conclusions and reserved consequential matters for further hearing.