What Is Statutory Derivative Action Under S260(1) Of The Companies Act 2006? What Safeguards Does The Act Give To The Courts To Help Them Manage Such CtionsA Flashcards
Explain a statutory derivative action
A statutory derivative action is a legal remedy available to shareholders of a company under the section 260(1) of the companies act 2006 in the uk. It allows shareholders to bring an action on behalf of the company against its directors or other officers for breach of duty, negligence, or other wrongful act, where the company is unwilling or unable to pursue the claim.
Under s260(1) of the statutory derivative action what can a shareholder do
A shareholder can bring a derivative action in the name of the company, but on behalf of the company, if they have obtained the permission of the court to do so. This means that the shareholder is acting as a representative of the company and the damages or compensation awarded in the action will go to the company not the shareholder.
What are the safeguards from the companies act 2006 that give the courts the power to ensure the statutory derivative actions are used properly and not abused by shareholders.
The requirement for shareholder to seek permission from the court
Requirement for shareholder to have a good case
The no reflective loss rule
The requirement for the shareholder to act in good faith and in best interest of the company
Power of the court to award costs against the shareholder
Explain the requirement for the shareholder to seek permission from the court
Before bringing a derivative action, the shareholder must apply to the court for permission to do so. The court will consider whether the shareholder has a good case and whether it is in the best interests of the company to bring the action.
Explain the requirement for the shareholder to have a good case
The shareholder must show that they have a good case against the directors or officers of the company. The court will consider whether the shareholder has sufficient evidence to support their claim and whether it is in the best interests of the company to pursue the claim.
Explain the no reflective loss rule
This rule prevents shareholders from bringing a derivative action where their claim is merely a reflection of the loss suffered by the company. This means that the shareholder must show that they have suffered a separate and distinct loss, independent of the loss suffered by the company
Explain the requirement for the shareholder to act in good faith and in the best interests of the company
The shareholder must act in good faith and must show that they are acting in the best interests of the company as a whole. The court will consider whether the shareholder has a personal interest in the outcome of the action and whether they are acting in the interests of the company or for their own benefit
Explain the power of the court to award costs against the shareholder
The court has the power to award costs against the shareholder if they are found to have acted unreasonably or if their claim is found to be without merit. This helps to deter frivolous or vexatious claims by shareholders
What do the safeguards of the companies act 2006 given to the courts to help them manage statutory derivative do
These safeguards help to ensure the statutory derivative actions are used appropriately and that they serve the best interests of the company as a whole. They also help to protect the directors and officers of the company from frivolous or unfounded claims by shareholders
