Hikari Miso (UK) Ltd v Knibbs – A New Investor Uses the Shareholder Agreement to Take Control of the Company

Hikari Miso (UK) Ltd v Knibbs and others (2023) EWHC 1340 (Ch) 

This case concerns a company called R&R Tofu Limited, which made tofu in the UK that skyrocketed to success, only for a Japanese investor’s veto power to bring growth to a grinding halt, leading to a High Court action to try and gain control of the company.

This 2023 case shows the power of shareholder agreements and how terms within it, in this case “reserved matters”, can make or break a company.

The Ambition and the Search for Investment

In January 2016, David Knibbs and Lydia Smith bought RR Tofu Ltd, with ambitious plans to expand the business to take advantage of the surging plant-based food market.

Initially, they sought investment from family and friends. “B” shares were created for those that invested.

In October 2016 Knibbs and Smith took a larger investment from Hikari Miso UK Ltd (HMUK), a Japanese owned company. HMUK invested £505,000 for 32.8% of the company’s shares under the terms of a considered and extensive Subscription and Shareholders’ Agreement (SSA). Knibbs and Smith held 40.48% (A shares) and the B shareholders held the remaining 26.72%.

What the Shareholder Agreement Said

The central clause in the SSA was clause 6; “Management & Reserved Matters Framework”, which said:

Clause 6.1(a) – Reserved Matters require prior written consent

(This established that no action on a Reserved Matter may be taken unless shareholders holding 75% or 70% (depending on the matter) give prior written consent.)

Clause 6.2 – Deemed Shareholder Consent

A shareholder is deemed to have consented if:

6.2(a): Its appointed director approves the matter at a board meeting

6.2(b): The shareholder (or its nominated director) signs written consent

6.2(c): For B shareholders, their representative signs

6.2(d): The action is specifically provided for in an approved Business Plan
[HIKARI~1 | PDF]

(These provisions drove major findings about how consent is given, and whether board-level discussions amount to shareholder approval.)

Clause 6.4 – Board Compliance / Duties of Nominee Directors

Shareholders must procure that their nominee directors:

6.4(d) act in good faith and in the interests of the Company

6.4(e) ensure the SSA is complied with, unless doing so conflicts with statutory duties

This clause was central to the defendants’ argument that H was obligated to override HMUK’s vetoes (the court rejected that argument).

Clause 6.5 – Company Compliance

Shareholders must ensure the Company acts properly and efficiently in accordance with the SSA.

Clause 6.7 – Reasonable Endeavours

Reserved matters were defined as follows:

Part C – Requiring 75% Shareholder Consent

Includes key items like:

Alterations to Articles

Winding up

Dividends “otherwise than in accordance with the SSA”

Part D – Requiring 70% Shareholder Consent

(This part was absolutely critical. Specific items litigated included)

Paragraph 4 – Borrowings / Hire Purchase > £30,000

Paragraph 9 – Employment Contracts > £35,000

Paragraph 10 – Capital Expenditure > £100,000

Paragraph 11 – Non–arm’s‑length or non‑ordinary‑course transactions

Paragraph 12 – Unusual or Long-term Transactions

Paragraph 13 – Approval of the Annual Business Plan

HMUK Starts Using Its Powers

By late 2019, HMUK was found to be considering purchasing the B shares under an investor option. This came to light from emails between HMUK and its nominated director. By 2020, HMUK started to use its power to veto a number of reserved powers. HMUK insisted that it was shareholders that called the shots rather than directors.

Knibbs pushed back, arguing directors’ Companies Act duties trumped the SSA, demanding re-votes at board level. Tensions came to a head over Five Matters in June 2020.

The Five Matters That Mattered

On 16 June 2020, via email, Knibbs sought votes on five Reserved Matters at a 22 June board meeting. These were: acquiring premises in Leeds, buying properties at 7-9 Rye Close, securing HSBC financing, forming an Irish subsidiary, and approving £1.8m capital expenditure.

Hayashi, HMUK’s nominee director, withheld approval pending HMUK review. On 29 June, HMUK formally vetoed all five proposals though later agreed to establishing the Irish entity on 2 December.

Knibbs and allies, including non-executive director Ian York (B shareholders’ rep), accused Hayashi of breaching his directors’ duties under the Companies Act 2006 by prioritizing HMUK’s veto over company growth.

What The Court Was Asked To Consider…

HMUK sought a declaration from the Court as to the true meaning and construction of the SSA The defendants counterclaimed alleging that HMUK had undertaken a strategy of disruption, with a view to running down the company to force a buy out at a lower price.

Deputy Judge Sarah Worthington DBE, at the High Court, on June 5, 2023, focused on four core issues.

How is shareholder consent to a Reserved Matter worked?

How, if at all, are individual shareholders and their nominee directors constrained in their voting on Reserved Matters?

Which matters fall within the definition of Reserved Matters?

Are the facts such that either the Claimant (HMUK), or the First Defendant (Mr Knibbs), is in breach of the SSA such as to trigger a compulsory buy-out of shares?

and ruled as follows:

1. Reserved Matters – shareholders can veto

Shareholders holding >25% or >30% (depending on the matter) have the right to veto Reserved Matters.
(E.g., HMUK alone could block all Reserved Matters requiring 70% approval.)

2. Consent can be “deemed”

Consent doesn’t need to come through a formal written request. It may be deemed if:

A shareholder’s nominated director approves the matter at a board meeting

The matter is specifically provided for in an approved Business Plan

Clause 6.2 serves as an alternative approval mechanism.

3. A shareholder can act in its own interests

Crucially, the court ruled:

A shareholder with veto rights may exercise them entirely in its own interests, even if contrary to the Company’s interests or its director’s views.
This follows Wilkinson v West Coast Capital and general company law principles.

HMUK could therefore veto finance, hiring or capital expenditure without breaching duties.

4. Directors must respect the veto

A director is not in breach for refusing to pursue a proposal that has been vetoed.

H (HMUK’s nominee) did not breach his director duties by:

Declining to approve the “Five Matters”

Declining to reconsider them

Declining to reconvene board meetings about them

5. No obligation for directors to override shareholder veto

The defendants’ argument—that H must ignore HMUK’s veto if he thinks a proposal benefits the Company—was rejected.

The SSA deliberately places Reserved Matter decisions with shareholders, not directors.

Why This Case Matters

This case matters because it clarifies the ironclad power of shareholder agreements, IN this case, a minority investor; HMUK, could veto key decisions in its own interests without breaching directors’ duties under the Companies Act 2006, even though they were potentially acting against the company’s interests.

The lesson? Exercise extreme caution when entering into shareholder agreements with investors. Always get professional advice.

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