The High Court has delivered a significant ruling on the limits of executive power, determining that even a CEO acting with a sincere belief that they are protecting their company from fraud cannot unilaterally suspend their own Board of Directors without specific constitutional authority.
Facts:
The conflict centred on a breakdown in the relationship between GQA Qualifications Ltd.’s long-standing CEO, Mick Clayton, and its Board of Directors, specifically regarding a strategic initiative known as Project Gemini. This project explored ways of restructuring GQA, which was limited by guarantee and holding roughly £9m in reserves, with the potential for directors to receive substantial exit payments or bonuses. Mr. Clayton, who viewed GQA as a not-for-profit entity, became deeply concerned that these payments constituted a “plundering” of company assets and potentially a fraud on the business. Extant tensions escalated when the Board appointed a new director, Mr. Ashley, to move the project forward, a ‘covert’ move which Mr. Clayton felt was intended to isolate him.
The situation reached a breaking point in late 2024 when the Board raised concerns about Mr. Clayton’s own conduct, including his use of corporate hospitality tickets at Barnsley FC for friends and family. During this period, the Board offered Mr. Clayton a final written warning as an “agreed outcome” to avoid a formal disciplinary hearing, although he rejected it, fearing it was a pretext to fire him. Believing his dismissal was imminent and that he was the only person standing in the way of the Board’s “unscrupulous” financial plans, Mr. Clayton sought advice from a former solicitor, Mr. Firman, and a marketing associate, Mr. Globe.
On 6 November 2024, Mr. Clayton executed what was described as an “attempted coup” by sending letters to the other five directors purporting to suspend them from their roles. He locked them out of the company’s IT systems, attempted to change the bank mandates at Barclays, and informed regulators and staff that the Board was being investigated for fraud. The Board responded by forfeiting his membership, suspending him, and eventually dismissing him summarily for gross misconduct.
Decision:
The outcome of this case was a split judgement, one that favoured the company on technical legal grounds, while partially vindicating Mr. Clayton’s personal integrity and motivations. The Court found that Mr. Clayton had committed several specific legal and contractual breaches, but it rejected the company’s more serious allegations that he was a malicious conspirator attempting to hijack the business for personal gain.
The Court ruled that acting to safeguard the company while also protecting his own job was an “intertwined” motivation that met the good-faith requirement. While the Court accepted that Mr. Clayton’s intent was good, it ruled that his actions were legally impossible. Under GQA’s constitution, a single director cannot suspend the rest of the Board, constituting an objective breach. Thus, the integrity of his intentions was immaterial, as he simply did not hold such executive power.
Implications:
This case highlights that good intentions do not excuse unlawful acts. Even if a director honestly believes they are saving the company from disaster, they must act within the powers granted by the company’s Articles of Association (AoA).
Companies must ensure that their AoA clearly define the process for suspending or removing directors, to preclude individual directors from “going rogue” and circumventing established legal channels, such as seeking a court injunction or calling an extraordinary meeting of members.
The case reinforces that the duty to promote the success of the company is subjective. Because the Judge believed that Mr. Clayton was genuinely trying to stop “plundering,” he was not found to be in breach of Section 172. It is very difficult for a company to sue a director for damages if that director can prove they had an honest (even if mistaken) belief that their actions were in the company’s best interests. This highlights the importance of the “Business Judgement Rule”, given that courts are reluctant to second-guess a director’s motives if they appear sincere.
