ML Covered - July 2025

We are pleased to share our latest instalment of ML Covered, our monthly round-up of key events relevant to those dealing with Management Liability Policies covering D&O, EPL and PTL-type risks.

High Court grants permission for both derivative action and shareholder petition to proceed alongside each other

In Chimbganda v Kundodyiwa and another company [2025] EWHC 1543 (Ch), the High Court ruled that it was reasonable to allow a derivative claim against a company shareholder and director while also bringing a shareholder petition against them.

Background

The Claimant and the First Defendant each held one share in the Second Defendant, a company which provided care services to local authorities, and were its sole directors. The Claimant and First Defendant also ran a separate business in Ireland where the First Defendant had made separate allegations against the Claimant.

 The Claimant brought a derivative claim against the First Defendant on behalf of the Second Defendant (the Derivative Claim), while at the same time bringing a shareholder petition under section 994 of the Companies Act 2006 (CA 2006) against the First Defendant (the Shareholder Action). The Claimant brought both claims against the First Defendant for allegedly breaching their duties to the Second Defendant by:

• mismanaging its finances;

• incurring expenditure for the benefit of themselves, their family and others associated with them;

• misusing the Certificate of Sponsorship licence; and

• diverting business opportunities to a company owned by their sister.

The Claimant obtained first stage permission in respect of the Derivative Claim and sought second stage permission to continue it. The First Defendant opposed the application, arguing:

• the allegations were contrived to deflect from her allegations in the Irish proceedings;

• the Claimant was not acting in good faith for the benefit of the company, but for selfish reasons; and

• a reasonable director of a company acting in accordance with the duty to promote its success would not seek to continue with the claim and therefore the court should refuse permission under section 263(2)(a) of the CA 2006.

Decision

The Court ruled that allowing the derivative action to proceed was reasonable, given that the allegations could impact the company's financial, reputational, and regulatory standing. The Court noted that while there was overlap between the Derivative Claim and the Shareholder Action, it did not follow that there was no point in allowing both to proceed and it was not inevitable that they would stand and fall together. Furthermore, it was determined that hypothetical directors could reasonably support the derivative claim to avoid potential injustice and safeguard the interests of the company.

The Court decided that it was not in a position to evaluate the dispute in Ireland, or assess how it might impact the Derivative Claim and Shareholder Action and that a mini-trial was not appropriate at this stage because nothing short of a trial would be capable of enabling the Court to consider the matters in dispute.

Key Takeaways

The judgment illustrates the importance for company directors to ensure they act within their duties, especially if they are also shareholders. The judgment highlights that other directors or shareholders have the ability to simultaneously advance a claim for derivative action as well as a shareholder petition against the same defendant, even if both claims involve considerable overlap.

To read the full judgment, please click here.

Insolvency Service appoints cryptoasset specialist to recover  assets from bankrupt directors

The Insolvency Service has appointed its first dedicated cryptoasset intelligence specialist to help them recover more money from bankruptcy cases which may include assets held by directors of insolvent companies.

In recent years, cryptoassets have increased dramatically in popularity. Research conducted by the Financial Conduct Authority in 2024 found that seven million adults in the UK, representing 12% of the population, held some form of cryptoasset. This figure is up from 3.2 million adults in 2021. Cryptoassets include cryptocurrencies, such as Bitcoin and Ethereum, as well as online tokens and non-fungible tokens (NFTs).

Unsurprisingly, the rapid rise in cryptoassets has led to a larger number of insolvencies involving cryptoassets. The number of insolvencies where cryptoassets were identified as an asset has increased by 420%, with 59 cases in 2024/25 compared with 14 cases in 2019/20. During the same five-year period, the estimated value of cryptoassets identified rose 364 times, from just over £1,400 to £520,000.

The new crypto specialist, Andrew Small, will help track digital assets in criminal cases and provide the Insolvency Service with detailed knowledge of the crypto market. The new cryptoasset intelligence role is based within the Insolvency Service’s Investigation and Enforcement Services team, meaning the focus will be on cryptoasset ownership in criminal cases.

Given the dramatic rise in cryptoassets in the UK, coupled with the rise in company insolvencies, directors need to be mindful that where the company is insolvent or bordering on solvency, but is not faced with an inevitable insolvent liquidation or administration, of their fiduciary duty to act in the company's interests and to reflect the fact that both shareholders and creditors have an interest in the company's affairs. This includes ensuring that cryptoassets held by the company can be readily located and recovered. This is particularly so given the increased number of claims being brought against former directors of insolvent companies.

To read the Insolvency Service's press release, please click here.

Rise in the use of Alternative Dispute Resolution in employment claims

In this month's edition of ML Covered, we focus on the use of alternative dispute resolution (ADR), which we are seeing Employment Tribunals increasingly utilise. In the Employment Tribunals, this is by way of judicial mediation and dispute resolution appointments (DRA). These are proving to be a powerful tool for resolving employment claims efficiently and cost-effectively ahead of final hearings of cases and are being used as one of the methods by which to reduce the current backlog of claims.

The Employment Tribunal does not always offer mediation. It is only considered in cases that are likely to be listed for a hearing of three days or more. When judicial mediation is not offered, there is always the option to use private mediation. Both options are discussed further below.

Key features of mediation

The key features of mediation are as follows:

• Voluntary – both parties have to agree to participate;

• Non-binding – any recommendation or proposal made by a Judge or mediator are non-binding (no legal status) unless and until an agreement is reached and the terms are converted into a binding agreement - which, in reality, is done the same day, as soon as an agreement has been reached;

• Flexible – increased options of solutions that would not be a remedy as part of the tribunal process i.e., agreeing a reference or making an official apology;

• Private – it is conducted on a "without prejudice" basis, meaning any negotiations or settlement proposals would not be disclosed;

• Confidential – any discussions during or mediation outcomes would not be placed on the public record.

Private mediation

Private mediation consists of the parties together instructing (and funding) an independent third-party to act as a mediator in the dispute. The mediator is presented with both parties' views and wishes, following which they make recommendations or offer solutions as to how the dispute could be resolved appropriately. Neither party is obliged to accept the recommendations, and the matter could subsequently proceed to the tribunal.

Judicial mediation

Typically, the road to judicial mediation starts once an employment claim reaches the preliminary stage at the Employment Tribunal. At the preliminary hearing, a Judge will discuss whether the parties are interested in judicial mediation. Judicial mediation is a free service. It is entirely up to the parties whether they wish to explore judicial mediation, and, unless both sides do, it will not be explored any further.  If both parties are interested, the matter will generally be referred for further consideration and, if suitable, a further hearing, typically 30-minute, will be held with the parties and the Judge to discuss and list the case for judicial mediation. Judicial mediation usually lasts for up to one day.

What to expect at a judicial mediation

Judicial mediations can take place either in person or remotely. The usual procedure involves both parties appearing before the Judge at the start and then going into separate rooms (physical or virtual). The Judge identifies key issues and facilitates settlement discussions.

If either party is unrepresented, the Judge may provide additional support by explaining relevant legal issues and the merit of any settlement offers, but no judgment on the claims or view of the strengths or weaknesses are provided, unless specifically sought.

Benefits of judicial mediation

There are several advantages to mediation, with the main incentive being the potential cost-savings for both parties by avoiding the claim proceeding to a final hearing.

Judicial mediations can also be listed at relatively short notice, a key benefit given the current backlog of tribunal cases.

Even if mediation does not result in a same-day settlement, it can still be valuable. It often opens a dialogue that may lead to resolution later. Since mediation is not binding, parties can continue settlement discussions afterward. Additionally, any offers made during mediation are on a "without prejudice" basis, meaning if the case proceeds to a hearing, neither party will be detrimentally impacted or bound by a previous offer.

Dispute resolution appointments

We have also recently seen a rise in compulsory DRA. Again, like judicial mediation, these have a potential cost-saving benefit.

A DRA is an impartial and confidential process led by an Employment Judge. DRA tend to take place 4-6 weeks after exchange of witness statements when both sides know the extent of the case they are fighting or defending. A key difference between it and judicial mediation is that it's an evaluative process, with the Judge making an assessment on the strengths, weaknesses, and risks of the parties' respective claims and giving views on remedy. A dispute resolution appointment usually takes place by video or telephone but may be held in person and is listed for 2 or 3 hours. As is the case with judicial mediation, an Employment Tribunal Judge who has conducted an unsuccessful DRA will not decide the claim on its merits at a final hearing.

DRA, in contrast to judicial mediation, are not voluntary. They are being introduced in several employment tribunal regions when cases are listed for 6 days. Parties can make written submissions to the tribunal as to why a DRA would not be in the interests of the overriding objective, but it is then up to the Judge to determine whether the appointment will proceed.

Cost savings for insurers

Judicial mediation and DRA present significant potential cost-saving benefits. Both services are offered for free by the Employment Tribunal and the costs associated with attending a judicial mediation or DRA tend to be lower than attending hearings at the Tribunal (not to mention the cost of preparing for hearings and complying with Tribunal orders).

What the future holds…

With the proposed Employment Rights Bill expected to take effect in 2026 which purports to remove the two-year service requirement for unfair dismissal claims, a significant rise in Employment Tribunal claims is widely anticipated. As a result, ADR is likely to become increasingly important, offering a faster and more cost-effective route for parties willing to engage with it.

Pension Schemes Bill

The Pension Schemes Bill has been published with significant changes for the pensions world, including of relevance to PTL:

• Introducing a permanent regulatory regime for final salary superfunds;

• New flexibilities to safely release some of schemes low dependency surpluses;

• A new duty on defined contribution scheme trustees to provide decumulation solutions;

• Defined contribution trust-based schemes will have to measure and publicly disclose metrics and details of investment performance, costs and service quality;

• A reserve power whereby the government can set minimum investment targets for defined contribution schemes.

Trustees and PTL insurers will need to keep an eye on proposed changes given the impact on risk particularly for defined contribution schemes with the introduction of new measures on the horizon.

Overturning Virgin Media

The government has confirmed plans to legislate for a retrospective solution to the Virgin Media v NTL Trustees judgment, which raised potential issues for amendments to contracted out final salary pension schemes that could not find so-called s.37 actuarial confirmations. The proposed legislation, based on the government announcement, will allow affected schemes to obtain actuarial confirmation after the fact, provided the scheme met the relevant standards at the time of the amendment.

The Virgin Media decision held that amendments to contracted-out benefits made without contemporaneous actuarial sign-off under Section 37 of the Pension Schemes Act 1993 are void – even where no reduction in benefits was intended. This left many schemes exposed, particularly where changes were made between 1997 and 2016 and no record of formal actuarial confirmation could be located.

The latest announcement, made on 5 June 2025, suggests that schemes will be able to cure these defects by obtaining retrospective written confirmation from an actuary – a move that could significantly reduce legal and financial uncertainty across the industry.

The news will be welcomed by employers, trustees and advisers, as it offers a potential route to validate historic amendments that would otherwise be void, helping to avoid the risk of unintended benefit uplifts (or reductions) and costly Part 8 proceedings.

Whilst full details of the legislation are awaited, and the scope of the legislation remains to be seen, it represents a significant and positive development – and could see many buy-outs left on hold whilst the decision was considered, now move forward.

For further detail, see RPC’s blog here.

TPR Issues New Guidance on DB Scheme Endgame Options

The Pensions Regulator (TPR) has released new guidance outlining the evolving landscape of endgame options for defined benefit (DB) pension schemes. This follows the government’s recent response to its consultation on DB schemes, including proposals to ease restrictions on scheme surpluses.

The guidance explores a wide range of endgame strategies - from traditional buyouts to run-on models, and emerging alternatives like superfunds and capital-backed solutions. TPR also addresses broader governance considerations, including the role of sole trustees in shaping endgame strategies. TPR has stressed that trustees must seek appropriate professional advice, assess the strength of the covenant to the scheme, understand potential loss of control, and conduct risk assessments and stress tests. They are also urged to consider how easily any arrangement can be reversed and the implications of doing so.

Overall, the guidance supports trustees in navigating the increasing complexity of DB scheme management and marks a significant step in aligning regulatory support with market and legislative developments.

To read the guidance, click here.

TPR Approves Surplus Refund

TPR has approved a modification order under Section 69 of the Pensions Act 1995, allowing the Littlewoods Pension Scheme to return a trapped surplus to its sponsor following scheme wind-up.

The scheme, established in 1947, closed to new members since 2001 and had around 10,000 members in 2023. Despite a £400 million deficit in the early 2000s, the scheme recovered through sponsor contributions, enabling two buy-ins worth £1.7 billion to fully secure member benefits. After fulfilling all obligations, approximately £16 million in surplus assets remained. The sponsor had contributed £32.5 million above its legal requirements. Without the modification, this surplus would have remained trapped within the scheme.

Following TPR’s approval, the trustee will notify members over the next six months to enable the surplus to be repaid. The scheme retained Arc Pensions Law to provide legal advice.  This case may pave the way for other mature schemes to explore surplus return options upon winding up and also provide protection from later criticism when it comes to returning scheme surpluses.

TPR to launch strategy to drive up standards of trusteeship

TPR has unveiled a new trusteeship strategy aimed at aligning pension scheme governance with professional and corporate standards. Speaking at the PMI annual conference, CEO Nausicaa Delfas said the shift comes as the pensions industry faces a “transformational impact” from the government’s new pension schemes bill, which includes plans to consolidate smaller pension pots into larger funds.

TPR plans to draw on best practices from other financial and corporate sectors to guide its approach, aiming to professionalise trusteeship without reinventing the wheel. At the same time, it will work to reduce unnecessary regulatory burdens. A broad review of scheme and supervisory returns is planned to eliminate requirements that do not directly contribute to better outcomes for savers.

Delfas emphasised that trustees must adapt to meet the demands of a changing landscape, becoming more focused on saver outcomes, agile, data-led, and capable of challenging groupthink. She stressed that trustees should operate with high levels of skill, diligence, and accountability. Delfas concluded by calling this an “exciting time” for the industry, urging trustees, administrators, and regulators alike to evolve in order to better serve the financial wellbeing of millions of UK savers.

TPR Urges DC Trustees to Prepare for Pension Schemes Bill

TPR has called on defined contribution (DC) pension scheme trustees to begin preparing now for reforms set out in the upcoming Pension Schemes Bill. Speaking at a DC industry conference. Patrick Coyne outlined four key themes: a focus on saver outcomes, building scale, becoming data-led and accountable, and innovating at retirement.

Coyne stressed that trustees should assess their investment strategies, challenge advisers on performance, and prioritise long-term value for savers. TPR, in partnership with the FCA, will launch a voluntary survey in late 2025 to gather asset allocation data and support improved investment governance.

In terms of building scale, Coyne has encouraged trustees to evaluate whether their scheme delivers sufficient value or could benefit from consolidation. Larger schemes were urged to explore new asset classes, including long-term asset funds. To support future dashboards, trustees must improve data quality by investing in digital infrastructure and understanding administrative capabilities. TPR will review its data collection to reduce burdens while raising standards.

Coyne also called on trustees to begin board-level discussions on retirement support, including decumulation products, ahead of the proposed Guided Retirement duty. TPR will provide innovation support to help schemes develop solutions that better serve members at retirement.