Derivative Claims Flashcards
What is a derivative claim?
A shareholder’s right of action which is not personal, but derives from a company’s right of action, which the company has not exercised
What was the claim under before the CA 2006?
A common law remedy
What did the Foss v Harbottle case establish?
Where a wrong has been done to a company, the company is the proper claimant acting through board or in some circumstances majority shareholders
Could shareholders bring a claim on the company’s behalf under Foss?
According to the Foss case, majority shareholders can
Could a minority shareholder sue for a wrong committed against a company under Foss?
No, even if company is refusing to take action
Are derivative claims still brought under common law?
No, they are brought under statute
What does s260 CA 2006 state?
Shareholders can bring a derivative claim where directors have breached statutory duties
Who does the remedy of such a claim benefit?
The Company, not the shareholders
What is the statutory definition of s260 CA 2006?
A member can bring a claim:
A) In respect of cause of action vested in the company; and
B) Seeking relief on behalf of the company
Who is a derivative claim brought against?
It is brought against the director of the company
What causes of action could a derivative claim be?
a) Negligence (proposed act, actual act or omission)
b) Default
c) Breach of duty
d) Breach of trust
Does the director have to have benefited before a derivative claim can be brought against them?
No need
Other than contractual obligations, what duties does breach of duty cover?
Common law duties
Is director just a registered director in derivative claims?
No, includes shadow directors as well as former directors
Can a cause of action right against a non-director?
Yes, but only in respect of the actions or omissions of a director
When could a cause of action be raised against a third party in Contract?
If a third party enters into a contract knowing about the breach of the director
Did the member have to be a member at the time of the breach?
No need, they could have become a member after the breach
Can former members bring derivative claims?
No, they have no interest in the company
What are the stages of bringing a derivative claim?
1) Obtaining permission from the court
2) Court will consider the case
When could it fail stage 1?
If the court, for example, is satisfied the person is acting in accordance with the duty to promote the success of the company.
What will the court consider in terms of the members views on this?
They will consider the general body of shareholders, as to make it harder for a single shareholder to bring a claim
Why is there a safeguard in making it hard for a single shareholder to bring a claim?
In order to avoid tactical litigation by disgruntled shareholders
