Corporate Law Update: 8 - 14 February 2025
14 February 2025This week:
- Companies House publishes rules for directors and other individuals who will need to verify their identity
- A plan is published for implementing a T+1 settlement cycle for securities in the UK
- An assignment of rights to claim for breach of warranty under a share sale agreement was ineffective
Final rules for Companies House ID verification published
Companies House has published final rules for directors, persons with significant control (PSCs) and others needing to verify their identity under changes due to come into effect in due course.
The Economic Crime and Corporate Transparency Act 2023 amended the Companies Act 2006 and the Limited Partnerships Act 1907 to require certain persons to verify their identity.
This includes individual directors and PSCs of UK companies. It also includes “registered officers” of certain legal entities, including legal entities that are PSCs or are general partners of limited partnerships.
The requirements are scheduled to come into effect in Autum 2025. However, as we noted in our previous Corporate Law Update on identity verification (IDV), Companies House is planning to introduce the ability to conduct IDV on a voluntary basis from 25 March 2025.
Individuals will be able to verify their identity directly through Companies House or, alternatively, through an “authorised corporate service provider” (ACSP), such as an accountant or lawyer. Companies House has published a separate set of rules for each route.
The rules set out the documentation an individual will need to provide to verify their identity through either route. The key points are as follows.
- In addition to their name, any former names and their date of birth, the individual will need to provide a valid email address, a current home address and, in some cases, previous home addresses.
- If verifying directly through Companies House, the individual will be able to complete IDV through the gov.uk One Login service using one of three “channels”: a smartphone app, a web service, or a face-to-face facility at a Post Office. In each case, the individual must be registered on Companies House Service.
- Importantly, direct IDV through Companies House will be available only if the individual has a biometric passport or has documentation issued in certain countries. (In particular, the web service channel will be available only for individuals with UK documentation.) If the individual does not have appropriate documents to undergo direct IDV, they will need to use an ACSP.
- If completing IDV indirectly through an ACSP, the individual may need to provide only one piece of documentation. This will generally be so where the document contains biometric information, such as a biometric passport or a biometric identity card. In other cases, they will need to provide two documents: a form of photographic ID, together with a form of supporting documentation.
Separately, Companies House has also published final rules governing the process by which firms can apply to become an ACSP.
Access the Registrar's (Identity Verification by the Registrar) Rules 2025 (opens PDF)
Plan published for implementing T+1 settlement cycle in the UK
The Accelerated Settlement Technical Group (ASTG) has published an implementation plan for the introduction of a T+1 settlement cycle in the United Kingdom.
The ASTG was set up to advise on the technical changes needed to transition to T+1 settlement for traded securities in the UK. In October 2024, it published its draft recommendations for implementation, containing 43 “principal recommendations” and 14 “additional recommendations”. You can read our previous Corporate Law Update on the ASTG’s draft recommendations.
The new implementation plan recommends that T+1 settlement begin on 11 October 2027. That date aligns with the timing proposed by the European Securities and Markets Authority (ESMA) for a movement to T+1 settlement within the European Union.
The plan also contains a proposed code of conduct, setting out the securities that would come within the scope of T+1 settlement and recommended actions to enhance market practices.
The Government has stated that it intends to respond to the report shortly.
Access the Government portal for implementing a T+1 settlement cycle in the UK
Assignment of breach of warranty claim under SPA was invalid
The High Court has held that an attempted assignment of the right to claim for breach of warranties in a share sale and purchase agreement (SPA) was invalid and ineffective, both because it contravened a contractual prohibition of assignment and because it fell foul of the rule against champerty.
What happened?
Tactus Holdings Ltd (in administration) v Jordan and ors [2025] EWHC 133 (Comm) concerned the buyer of shares (Tactus) under an SPA. Tactus’ board concluded that it had grounds to bring a claim for breach of warranty under the SPA on the basis of a historic overstatement of EBITDA.
Tactus commenced and served proceedings against the sellers in March 2023. In January 2024, the operating target company under the SPA entered into administration. In February 2024, Tactus’ directors incorporated a new company called Chillblast Limited.
In March 2024, Tactus’ lender, Santander, assigned to Chillblast all of its rights and interest in a revolving credit facility it had advanced to Tactus. In exchange, Chillblast agreed to pay Santander certain sums, including a share in the proceeds of Tactus’ claim against the sellers.
In mid-May 2024, Tactus purported to assign its rights under the SPA, as well as its claim against the sellers, to Chillblast. The consideration included a reduction in debt owed by Tactus to Chillblast, as well as a share in the proceeds of the claim.
On assignment of rights, clause 13.1 of the SPA stated:
“13.1 No party shall assign, transfer, charge, make the subject of a trust or deal in any other manner with this agreement or any of its rights under this agreement … except that [Tactus] may:
13.1.1 …
13.1.2 assign the benefit of any provision to which it is entitled from time to time, grant security over or assign by way of security in whole or in part to any lender who provides financial facilities to [Tactus] …”
In late May 2024, Tactus entered administration. In June 2024, Chillblast applied to be substituted in place of Tactus in the proceedings against the Sellers.
What did the court say?
The court held that the assignment was prohibited by clause 13.1 of the SPA. As a result, citing Linden Gardens Trust Ltd v Lenesta Sludge Disposals Ltd [1994] 1 AC 85, the judge held that the assignment had no effect.
The judge rejected the argument that, by virtue of taking an assignment of the rights under the Santander facility, Chillblast had become a “lender”, or was “providing financial facilities”, to Tactus. The assignment made Chillblast a creditor of Tactus, but Chillblast had not actually advanced any funds to Tactus and could not be said to have undertaken activities akin to a lender or finance-provider. In short, being a creditor did not equate to being a “lender”.
The judge also rejected the idea that, even if the assignment had not been effective in law, it was effective in equity and created a trust in favour of Chillblast. Clause 13.1 prohibited assignments, both statutory and equitable. Moreover, although the court did not need to decide the point, it noted that clause 13.1 also purported to prohibit trusts over rights under the SPA and this was likely effective.
Finally, even if the assignment had not been prohibited by the SPA, the judge found that Chillblast was precluded from pursuing the proceedings against the sellers due to the rule against champerty.
Champerty occurs if:
- one person (X) undertakes to maintain or support litigation by another person, whether by an assignment or other means, in exchange for a share of the proceeds of that litigation; and
- X has no legitimate interest in the litigation and there is no just cause or excuse for the maintenance or support.
The court discussed various forms of “legitimate interest” that might permit the assignment of a legal right of action. However, these all involved X having some interest that exists independently of the assignment. By contrast, X’s interest is not “legitimate” if it comes about solely by means of the purported assignment itself.
There was no legitimate interest case here. Chillblast had argued that its interest lay in the fact that it had become a creditor of Tactus. However, the judge noted that part of the consideration for Santander’s assignment to Chillblast was a share in the proceeds of claim, something Chillblast was not able to promise to Santander unless Tactus assigned that claim to Chillblast.
In essence, therefore, the assignment by Santander and the assignment by Tactus were “part and parcel of the same transaction”, and that transaction could not itself create an interest sufficiently legitimate to bring the assignment outside the rule against champerty.
What does this mean for me?
Although the facts of the case are quite particular, the judgment does illustrate that there can be various obstacles to assignment of rights under a share or business sale agreement, particularly rights under contractual warranties.
A person looking to take an assignment will first need to check that the SPA does not prohibit the assignment. If it does, the assignment will be of no effect.
Even if the SPA does permit assignment, the parties will need to be comfortable that the person taking the assignment has some interest that allows them to initiate proceedings at a later date. As the court noted here, a debt is generally considered a property right that can be transferred. However, a right of action (e.g. to claim damages) is a matter intended to be litigated, and its purported transfer may be vitiated on the grounds of champerty.
Finally, even if assignment is permitted (both by the SPA and by law), the question of damages could pose an additional challenge. On a breach of warranty, loss is normally calculated as the difference between the price paid by the buyer and the value of the shares or business factoring in the breach of warranty. But the assignee will not have paid anything for the shares or business and, indeed, might not even own the shares or assets in question, and so proving its loss could be problematic.
The key point is that a person seeking to take an assignment of warranties should take legal advice on whether that assignment is effective and, if it is, how useful it is.
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