Shareholders - Derivative Claims Flashcards
(13 cards)
What is a derivative claim?
A claim brought by a shareholder on behalf of the company, rather than for their own benefit, where the company has cause of action it has failed to pursue
What legal principle does a derivative claim override?
It creates statutory exception to the rule is Foss v Harbottle, which held that only the company may sue for wrongs done to it, not individual shareholders
Who is the proper claimant in a derivative claim?
The company. the shareholder acts derivatively on its behalf
What must a derivative claim relate to?
A cause of action involving negligence, default, breach of duty or breach of trust by a director
Can a derivative claim be brough if the director did not benefit?
Yes - personal benefit is not required for a claim to proceed.
Who may be a defendant in a derivative claim?
- Director
- 3rd party, if involved in the director’s breach
Can a former shareholder bring a derivative claim?
No - only a current member may bring a derivative claim
What is the 1st stage of the derivative claim process?
The claimant must obtain permission from the court to continue. The court considers whether there is a prima facie case
What grounds require the court to dismiss a claim at stage 1?
Court must refuse permission if:
- A hypothetical director under a duty to promote the company’s success would not continue the claim
What discretionary factors must the court consider?
- Whether the claimant is acting in good faith
- Whether the act is likely to be ratified
- whether the alternative remedy is more appropriate
- The importance a director would attach to continuing the claim
What does the court assess at stage 2?
The court gives particular regard to the views of disinterested members, i.e. those who have no direct or indirect personal interest in the matter
What types of breach are covered by derivative claims?
- statutory duties breach
- common law duties breach
- negligence, default or breach of trust
Is a remedy under a derivative claim awarded to shareholder?
No - its awarded to the company, not the shareholder who brought the claim
