Derivative Claims Flashcards
What is the nature of a derivative claim under s260 CA 2006?
A. A claim brought by a director against a shareholder
B. A claim brought by a company against a third party
C. A claim brought by a shareholder in respect of a personal right
D. A claim brought by a shareholder on behalf of the company
D – A claim brought by a shareholder on behalf of the company
Explanation: A derivative claim allows a shareholder to bring proceedings on behalf of the company where the company has suffered a wrong (usually by directors) and has failed to take action.
Under s260 CA 2006, which of the following can give rise to a derivative claim?
A. A breach of a director’s statutory duty
B. A dispute over dividend distribution
C. A shareholder disagreement
D. A failed takeover bid
A – A breach of a director’s statutory duty
Explanation: Derivative claims arise only from actual or proposed breaches involving negligence, default, breach of duty or breach of trust by a director.
Amy, a shareholder in XYZ Ltd, discovers that a former director misused company funds. Can she bring a derivative claim?
A. No, claims cannot relate to former directors
B. Yes, as long as she became a member before the breach
C. Yes, even if the breach happened before she became a member
D. No, because the director is no longer in post
C – Yes, even if the breach happened before she became a member
Explanation: s260(4) CA 2006 confirms that it doesn’t matter when the shareholder became a member; they can still bring a claim for past misconduct.
What is the key case that established the common law rule that derivative claims replaced?
A. Donoghue v Stevenson
B. Re Smith & Fawcett Ltd
C. Foss v Harbottle
D. Eley v Positive Life Assurance
C – Foss v Harbottle
Explanation: Foss v Harbottle established the principle that the company, not individual shareholders, is the proper claimant in wrongs done to the company – a rule later limited by s260 CA 2006.
Tom wants to bring a derivative claim, but the court finds that no reasonable director would support continuing the claim. What will the court do?
A. Proceed to trial
B. Dismiss the claim under s263(2)
C. Allow the claim if Tom acts in good faith
D. Issue an injunction
B – Dismiss the claim under s263(2)
Explanation: Under s263(2), the court must refuse permission if a director acting under s172 (to promote the company’s success) would not pursue the claim.
Who receives the benefit of a successful derivative claim?
A. The claimant shareholder
B. All shareholders equally
C. The director
D. The company
D – The company
Explanation: A derivative claim is brought on behalf of the company, and any compensation or remedy is awarded to the company itself, not the individual shareholder.
Shareholder Dan brings a derivative claim. The court finds he acted in good faith, but most other shareholders oppose the claim. What will the court consider under s263(4)?
A. Whether the company can afford litigation
B. Whether Dan can afford to pay costs
C. The views of disinterested shareholders
D. Whether Dan is a director
C – The views of disinterested shareholders
Explanation: At stage 2, the court must have particular regard to the views of members who have no personal interest in the claim (s263(4)).
A shareholder brings a claim against a third party who knowingly assisted in a director’s breach of duty. Is this allowed under s260?
A. No, third parties cannot be sued
B. Yes, if the director is also named in the claim
C. No, unless the breach is criminal
D. Yes, but only in limited circumstances
D – Yes, but only in limited circumstances
Explanation: Derivative claims may include third parties only if they knowingly assisted in a director’s breach of duty. This derives from common law, not directly from the statute.
Which of the following is NOT considered by the court at stage 1 of a derivative claim?
A. Whether the shareholder acted in good faith
B. Whether the company has suffered loss
C. Whether the act is ratifiable
D. Whether a prima facie case exists
A – Whether the shareholder acted in good faith
Explanation: Good faith is considered at stage 2. At stage 1, the court checks if a prima facie case exists and whether statutory bars under s263(2) apply.
Jane, a former shareholder, tries to bring a derivative claim for breaches occurring while she was still a shareholder. What is the correct outcome?
A. She may bring the claim if it benefits the company
B. She may bring the claim if approved by current shareholders
C. She is barred from bringing the claim
D. She may bring the claim if the court grants permission under s261
C – She is barred from bringing the claim
Explanation: Only current members can bring a derivative claim. Former members have no standing, even if the events occurred during their membership.
