The One-Tier Board (IVOR nr. 85) 2012/2.7.3:2.7.3 Derivative suits in the UK

The One-Tier Board (IVOR nr. 85) 2012/2.7.3

2.7.3 Derivative suits in the UK

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

Before the Companies Act 2006 it was very difficult for a shareholder group to start a derivative suit in the UK. As the Foss v. Harbottle rule of 18431 implied, the grounds for getting relief from the courts were very limited. Only members of the board or shareholders have the right, after receiving the permission to do so from the board or the court, to file a derivative suit, which is a suit where a prosecuting shareholder starts litigation against directors for mismanagement and can do so notwithstanding the general rule that shareholders cannot bring action against directors for damages. If the derivative suit is successful damages caused by directors have to be reimbursed to the company.2 Sections 260-269 of the Companies Act 2006 deal with such a derivative suit.3 Environmentalists or employees cannot file derivative actions arguing that directors have not sufficiently taken their interests into account. The shareholder group would not get relief if the litigation issue could be better lelt to the shareholders as a whole. Under section 263(2) of the Companies Act 2006 permission must be refused if the court is satisfied (a) that a person acting in accordance with section 172 (duty to promote the success of the company) would not seek to continue the claim, i.e. it would not be in the interest of the company to continue the claim, or (b) that the acts constituting the alleged breach of duty were in fact authorised.

First, the court hears only the applicant to determine whether the application should immediately be dismissed for Jack of a prima facie case. If the case is not dismissed immediately, the court will then hear all parties and take evidence.

The court may then, at its discretion, check various factors:4

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whether the shareholder seeking to bring the derivative claim is acting in good faith, or whether, for example, the litigation is motivated by personal interests;

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whether the act or omission which constituted the alleged breach of duty is likely to be ratified by the company (i.e. by the shareholders collectively) or — expressed as a separate test — whether in the case of the alleged breach of duty the act or omission is likely to be authorised or ratified by the company; authorisation can sometimes be given by the directors who are not involved (this is a very important defence for the directors);

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whether the company (i.e. the uninvolved directors) has decided not to sue;

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whether the shareholder could pursue the case in his own right.

It is unlikely that many applications for permission for derivative actions will be successful in Britain, which is what the Law Commission intended. In its consultation paper on derivative suits5 the Law Commission wrote: "a member should be able to maintain proceedings about wrongs done to the company only in exceptional circumstances" and "a shareholder should not be able to involve the company in litigation without good cause ...". Otherwise the company may be "killed by kindness towards shareholders", or "waste money and management time in dealing with unwarranted proceedings".6

Deze functie is alleen te gebruiken als je bent ingelogd.