Boohoo in Ireland: Could ESG Failures Spark Investor Claims?

The market value losses and subsequent proceedings brought by investors against Boohoo in the UK serve as a stark reminder that ESG reporting obligations and consequent penalties are rising sharply and the reputational fallout can be significant. Our Dispute Resolution team examines what would happen if a similar situation occurred in Ireland.

The UK Sunday Times published articles in 2020 and 2022 exposing that Boohoo's suppliers were paying workers below the minimum wage. These revelations led to significant market value losses for the UK fast fashion retailer, amounting to approximately £1.5 billion. This prompted institutional investors to initiate legal proceedings against Boohoo. They are seeking to recover over £100 million in damages, citing the company’s failure, or delay, in disclosing information about the wages paid by its suppliers.

In a world of increasing Environmental Social and Governance (ESG) reporting requirements, this case underscores the importance of proactively and comprehensively addressing ESG obligations to avoid significant legal, financial and reputational consequences. In this article, we consider what would happen if a similar reporting failure occurred to a company established in Ireland.

Prospectus misstatement liability under Irish law

The institutional investors suing Boohoo in the UK allege that the company made untrue or misleading statements. They also claimed it failed to disclose or delayed the disclosure of material information to the market. These alleged breaches related to Boohoo’s obligations under sections 90 and 90A of the Financial Services and Markets Act 2000.

An equivalent provision is contained in section 1349 of the Irish Companies Act 2014 (CA 2014). It provides that a broad spectrum of stakeholders involved in the issuing of a prospectus may be held liable including:

1. The issuer of the prospectus
2. Whoever issued it on the issuer’s behalf, and
3. Directors of the issuer

They shall be liable to pay compensation to anyone who acquires security and suffers loss by reason of:

1. An untrue statement within the prospectus, or
2. Any omission of information in the prospectus required by EU law

A judgment has yet to be delivered in the Boohoo proceedings. Regardless of the outcome, it is likely to significantly develop the law in the UK on this issue. These provisions have equally not been tested to any significant degree by the Irish courts. However, the Court of Appeal decision in Sheeran v Fitzpatrick is informative.

In Sheeran v Fitzpatrick the appellants were shareholders of two public limited companies in liquidation. They were dissatisfied with the premature sale of forests owned by both companies, which resulted in returns significantly lower than those projected in the prospectuses. The appellants raised concerns that the directors might have been guilty of misrepresentation and/or misselling at the inception of the investments. They also alleged that the directors made untrue statements in the prospectuses. This, they argued, breached section 49 of the Companies Act 1963, the predecessor provision to section 1349 in effect at the time the prospectus was issued.

The appellants’ primary application sought to inspect the companies' accounting records, books and documents. Their aim was to gather evidence in support of their potential claim under section 49.

In allowing the appellants to inspect the companies’ records, the Court of Appeal found that the appellants had demonstrated reasonable grounds to assert a potential cause of action under section 49. The Court held that it was equally reasonable to argue that the companies' accounting records might also contain information relevant to that potential claim.

This case is a good example of the Irish Courts recognising, in principle, the cause of action provided for under section 1349. It also shows that the Courts are willing to assist parties in gathering evidence to bring a Boohoo-style case for an untrue statement in a prospectus within this country.

What ESG disclosures are currently required in a prospectus under EU law?

In addition to claims for an untrue statement in a prospectus, section 1349 also enables a security holder who suffers a loss to seek compensation if there is an “omission of information in the prospectus required by EU law”.

The Prospectus Regulation (2017/1129) (the Prospectus Regulation) is directly effective in Ireland and supplemented by the European Union (Prospectus) Regulations 2019. Article 6(1) of the Prospectus Regulation provides that:

“a prospectus shall contain the necessary information which is material to an investor for making an informed assessment of:
(a) the assets and liabilities, profits and losses, financial position, and prospects of the issuer and of any guarantor;
(b) the rights attaching to the securities; and
(c) the reasons for the issuance and its impact on the issuer.”

Recital 54 of the Prospectus Regulation also provides that “environmental, social and governance circumstances can also constitute specific and material risks for the issuer and its securities and, in that case, should be disclosed”.

Therefore, if a potential disclosure relating to ESG issues meets a sufficient materiality threshold based on its importance to a prospective investor, it should be disclosed under EU law.

In this hypothetical scenario, it could be argued that an omission of information relating to the underpayment of workers in a supply chain is material enough to support a separate cause of action under section 1349.

Shareholder oppression

In another twist to the Boohoo litigation, Frasers Group, a minority shareholder in and direct competitor to Boohoo, started publishing open letters to Boohoo’s board in December 2024. The letters cited governance issues such as Boohoo’s slumping share price, failure to cut costs and poor refinancing as a basis for a board reshuffle which included inserting Mike Ashley (CEO of Frasers Group) as CEO of Boohoo. The letter called for a general meeting to put various resolutions into effect stating:

“For too long, this Board [Boohoo] has ignored the views of shareholders and refused to meaningfully engage with their ideas”.

While Frasers Group’s resolutions did not pass at Boohoo’s general meeting, this type of shareholder activism is familiar in Ireland and is played out in Irish courts regularly through different guises.

Section 212 of the CA 2014 provides a mechanism where minority shareholders can apply to the Court for protection if the affairs of a company is being conducted, or the powers of the directors of the company are being exercised in a manner that is:

1. Oppressive to that member or other members in the company, or
2. In disregard of their interests as members

The Court retains a wide discretion to make orders rectifying instances of shareholder oppression which allows shareholders to take complex and speculative legal proceedings to achieve their desired results. Recent reporting shows that shareholder activism cases doubled in Ireland in 2024.

What’s next for sustainability reporting obligations under EU / Irish Law?

The Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) introduce mandatory sustainability reporting standards on ESG matters for in scope companies. The CSDDD requires in scope companies to establish human rights and environmental due diligence policies which identify actual and potential impacts. In scope companies must then prevent potential impacts and address actual impacts in their operations and “chain of activities”.

Both directives work in tandem with the CSRD enhancing transparency and accountability in sustainability reporting and the CSDDD mandating that companies undertake thorough due diligence procedures. The obligations outlined by the CSDDD need to be integrated into a company's CSRD sustainability report.

For a company the scale of Boohoo with more than 1,000 employees on average and a net worldwide turnover of more than €450 million it would be in scope for these directives. Therefore, the company is required to integrate due diligence into its policies and risk management system and identify actual or potential adverse impacts on the environment and human rights.

Penalties under CSDDD

Penalties in Ireland under the CSDDD, once implemented, for a Boohoo-style incident would be twofold.

First, financial penalties are due to be set by an Irish supervisory authority that will be “effective, proportionate and dissuasive” with the maximum limit not being less than 5% of net worldwide turnover for the prior year. The supervisory authority can also publicise the company’s actions. The setting of these fines could lead to potential litigation against the supervisory authority challenging the scope and scale of such penalties.

Second, CSDDD imposes a statutory civil liability on a company for damage caused to natural or legal persons arising from the company’s intentional or negligent failure to comply with CSDDD obligations. This again could lead to litigation where such damages are asserted by affected parties.

As a result, if a Boohoo-style incident occurred in Ireland once the CSRD and CSDDD are in full effect, the company could face significant penalties from an Irish supervisory authority. In addition, they could face uncapped civil liability for any damage suffered by individuals/companies by virtue of a failure to comply with the obligations.

Collective redress potentially ratcheting up future claims?

Finally, while there is no equivalent to a class action in Ireland, the Representative Actions for the Protection of the Collective Interests of Consumers Act 2023 has recently come into force in Ireland since 30 April 2024. It will enable certain collective actions if consumers are affected by certain statutory breaches. Under the 2023 Act, the Minister for Enterprise, Trade and Employment can designate non-profit organisations that meet certain criteria as ‘qualified entities’. Once designated, qualified entities are empowered to bring pan-European class actions on behalf of consumers under a range of European directives and regulations.

It is likely that the 2023 Act will further enable designated entities to take collective action on behalf of consumers regarding breaches of ESG obligations in due course.

Comment

This Boohoo hypothetical could easily become a reality in Ireland. Issuers of prospectuses should pay close attention to the ESG disclosures they make to ensure they are accurate and reflective of the business' practices because the consequences, as we have seen in the Boohoo case, can be significant. Equally, directors should be prepared for disruptive activism from its shareholders.

In time and with the full implementation of CSRD and CSDDD, the potential causes of action for investors and scope of liability will only increase.

The reputational damage cannot be underestimated and as for Boohoo, one can only speculate if events over the last three years prompted its recent rebranding to Debenhams.

For more information and expert advice, contact a member of our Dispute Resolution team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.