Directors’ powers and the proper purposes rule

This article analyses the recent developments in the proper purposes rule. In Eclairs Group Ltd and another v JKX Oil and Gas plc [2015] UKSC 71 the UK Supreme Court revisited the proper purposes rule in the context of directors’ power to impose restrictions on voting and other rights attaching to shares. The decision is notable for two aspects. First, it clarifies that the exercise of a power that does not meet the proper purposes test cannot be defended on the ground that it promotes the long-term success of the company. Second, it proposes a new test for determining the principal purpose for which a power was exercised. It is submitted that both aspects are positive developments of the law governing directors’ powers.