216A. Derivative or representative actions Flashcards
216A. Derivative or representative actions
General overview
[216A.01] Section 216A is a statute-based derivative action which is the alternative to the common law derivative action. The common law derivative action arises where the company suffers loss or damage caused by the directors in breach of their fiduciary and other duties or other persons and the wrongdoer directors who control the board refuses to take legal action on behalf of the company. In this action, any member may sue in the name of and on behalf of the company under the exception to the rule in Foss v Harbottle (1843) 2 Hare 461 , Vice Chancellor’s Court on the ground that the acts complained of were a “fraud on the minority” and the wrongdoers were themselves in control of the company. For examples of conduct amounting to “fraud on the minority”, see Tan Cheng Han, Walter Woon on Company Law (Revised Third Edition) (2009, Sweet & Maxwell) paras 9.46–9.59. The common law derivative action is fraught with procedural difficulties and tends to result in protracted legal proceedings: Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1981] Ch 257; [1982] Ch 204, CA . As a result, s 216A was introduced to simplify the process of a member suing on behalf of the company where there was a wrong committed against the company.
