Statutory derivative claims

Question 1

briefly explain this claim

Answer 1

the company has a cause of action against D. A SH can bring the claim (or continue an existing claim) on behalf of the company.

Irrelevant whether the COA arose before/after the SH became a member

Question 2

who is the claimant and defendant?

Answer 2

o Claimant = the company

o Defendant = D(s) or a third party provided the claim arises from D’s fault (i.e. D sells a company asset in breach of duty below market value to a friend who is not a bona fide purchaser. The claim could be brought against the friend)

Question 3

briefly explain the procedure for this type of claim (3)

Answer 3

1. SH issues the claim + application for permission to continue with the claim.
2. the court decides take a preliminary decision on permission on the papers
3. If granted, there will be a full permission hearing

Question 4

what happens when the court takes a preliminary decision on the papers?

Answer 4

o Court must dismiss the claim if a prima facie case (i.e. there is a COA arising from D’s actions) is not made.
o The applicant can request oral renewal hearing if refused.
o If granted, the court may give directions i.e. evidence

Question 5

what test is applied at the full permission hearing? What is also relevant to the court’s decision?

Answer 5

Two-stage test to granting permission:
a) The court must refuse permission if:
 No D acting in accordance with their s172 duty would bring the claim
 The wrongdoing has been authorised/ratified

b) If a) is passed, the court decides whether to grant permission, + must consider:
 Whether the SH is acting in good faith
 The importance a person acting in accordance with s172 would attach to the claim (i.e. does it make commercial sense to bring the claim, i.e. size, strength, cost, impact on company?)
 Whether authorisation/ratification is likely
 Whether the company decides not to pursue the claim
 Whether the COA could be pursued by SH (rather than by the company)

The court should also consider the views of SHs with no personal interest

Question 6

what are the possible outcomes of the full permission hearing?

Answer 6

The court may:
 Grant permission + give directions for trial
 Refuse permission + dismiss the claim (SH usually ordered to pay costs)
 Adjourn + give directions