This week we look at a letter from the ICGN, Institute of Directors, TUC and ICSA on improvements in corporate governance (including better enforcement of directors' duties), as well as the first "reverse" cross-border merger and a case examining what it means to give notice "as soon as possible".


The International Corporate Governance Network (ICGN), the Institute of Directors, ICSA and the Trade Unions Congress (TUC) have written a joint letter to the Prime Minister on the subject of corporate governance.

The letter states that all four bodies will be responding to the Government's green paper on corporate governance (issued in November last year). However, it highlights to the Prime Minister that they are united on the particular issue of the duty of a company's directors to promote the company's success.

This is set out in section 172 of the Companies Act 2006, which requires the directors to promote the success of their company for the benefit of its members (normally shareholders), but also to have regard to other factors, including employees and business relationships with customers and suppliers.

In particular, the letter advances the following recommendations:

  • Encouraging frameworks for executive pay that are more broadly acceptable.
  • The creation of a mechanism to allow these stakeholders to make complaints and seek remedies if the directors are not fulfilling their statutory duty. One suggestion mooted by the letter is to establish an independent regulator to adjudicate on complaints by stakeholders.

This would represent a significant change in company law. At the moment, a company's directors are accountable only to the company itself. Although a company's shareholders may enforce these duties through the statutory mechanism of a derivative claim, it can often be difficult to overcome the evidential threshold to bring the claim. Creating an ability for other stakeholders to bring proceedings themselves would extend the exposure faced by directors.

  • Requiring or strongly encouraging large private companies to apply the same principles of independence and transparency as public companies. This is similar to the suggestion in the green paper of extending the UK Corporate Governance Code (in a modified form) to large private companies.

Again, this would represent a material shift in company law, which currently only imposes corporate governance requirements on private companies through the statutory duties of its directors. That said, this change would seem to follow a broader on-going trend of encouraging transparency and accountability within private companies, embodied in regimes such as the PSC regime and new invoice payment practice reporting.


The High Court has sanctioned the first "reverse" cross-border merger in the UK. A cross-border merger normally involves a subsidiary (often a wholly-owned subsidiary) being merged into its holding company, or two companies being merged into a brand new vehicle.

What happened

In Re Formenta Limited, by contrast, a pure UK holding company was merged into its own Italian subsidiary in what was termed a "reverse cross-border merger by absorption".

This is remarkable because, whilst Italian law and the corresponding European Union Directive both allow for this, the Companies (Cross-Border Merger) Regulations 2007 (the "Regulations") (which implement the Directive in UK law) do not recognise the concept of a reverse cross-border merger.

The problem appears to have been overcome by treating the merger in the same way as a merger by absorption of a whollyowned subsidiary, the type of cross-border merger that typically involves the fewest administrative steps and requirements.

Perhaps more notable, though, is the reason for the merger. The stated purpose in the common merger terms was to "simplify the group" and ensure "greater efficiency in economic, managerial and financial terms". However, one of the other consequences of the merger is that what was a UK group will now become an Italian group.

Practical implications

Following the referendum in which the UK voted to leave the European Union, it may be that reverse cross-border mergers of this kind become more common as a way of re-domiciling companies that are currently based in the UK.

However, this window of opportunity might remain open for only a limited time. Once the UK leaves the European Union, it is not certain that cross-border mergers involving UK companies will be possible, even if the Regulations remain in place, if the framework for other European Union jurisdictions to recognise a crossborder merger involving the UK disappears.


In Zurich Insurance plc v Maccaferri Ltd, the Court of Appeal confirmed that an obligation to give notice of a claim under an insurance policy "as soon as possible" after an event occurs does not require an insured to give notice unless it believes there is at least a 50 per cent chance a claim will be made.

What happened

Maccaferri hired a batch of industrial staple-guns out to another company ("J"), which in turn sub-hired them to a third company ("D"). D employed an individual who suffered a severe eye injury caused by a misfire from one of the staple-guns, leaving him nearly blind.

The injury occurred in September 2011. Both D and J notified Maccaferri of the incident nine days after it happened. Over time, Maccaferri gradually learned more about the incident.

The employee began proceedings against D in July/August 2012. D then sued J for a contribution, and J in turn brought Maccaferri into the proceedings. Maccaferri did not become aware of this until it received notice on 22 July 2013, at which point it immediately notified its insurer, Zurich.

Zurich declined the claim, citing a clause of the policy that read: "The Insured shall give notice in writing to the Insurer as soon as possible after the occurrence of any event likely to give rise to a claim..." Maccaferri brought proceedings against Zurich.

The decision

The court decided that the clause required Maccaferri to notify Zurich only if a reasonable person would have thought, in light of Maccaferri's actual knowledge at the time, that it was at least 50 per cent likely that a claim would be made. In other words, although the obligation was to give notice as soon as possible after the event occurred, it still only applied if Maccaferri appreciated that a claim was likely.

The court also said that the clause did not impose an on-going obligation to carry out a "rolling assessment" of whether a past event is likely to give rise to a claim as circumstances develop.

The decision was influenced by the fact that Zurich had argued that the clause exempted it of all liability. The court reminded the parties that attempts to exclude liability must be set out in clear terms. It was clearly not minded to allow the insurer to escape liability merely because the insured had failed to notify it of an incident, even though the insured had not appreciated the likelihood of the claim.

Practical implications

The decision is naturally helpful for insureds under insurance policies. However, the same principles should in theory apply to any commercial contract under which one party is required to notify another party of a likely claim.

Sale and purchase agreements commonly include a requirement on a seller to notify the buyer if it becomes aware of a breach of warranty between signing and closing. They also often include a requirement on a buyer to notify the seller of any matter which might give it a right to claim for breach of warranty after closing. Occasionally, the clause will state that the seller has no liability for the claim if the buyer fails to do this.

The Court of Appeal already held recently (in Nobahar-Cookson v The Hut Group) that a buyer did not have to give notice of a claim until it was aware there was a proper basis for the claim. The new case lends additional support to this approach and suggests it will apply to commercial contracts generally.

However, buyers should not seek to rely too heavily on the case. The most prudent approach will still be to carefully scrutinise any event that might touch on any of the warranties in a sale agreement.