Derivative Claims: Shareholders strike back

by | Dec 23, 2015 | Blog Posts

derivative claims

The situation may arise where a shareholder:

  • believes their shareholding his been prejudiced by the actions of a director; and
  • the company (possibly controlled by that director) refuses to take action.

The shareholder wants the director to be held to account. However, if the company is a successful, profitable enterprise, the shareholder will not want to divest their shares or wind up the company.

What is the shareholder to do to?

The shareholder could pursue a minority shareholder’s prejudice claim under sections 994-996 of the Companies Act 2006. However, these claims tend to be a blunt instrument and generally lead to the sale of the relevant shareholding, or the dissolution of the company. The answer could instead be to pursue a “derivative claim” on behalf of the company.

What is a derivative claim?

Section 260 of the Companies Act 2006 allows any member of a company (shareholder) to pursue a claim against any director of the same company who has breached their fiduciary duties. There are important differences between a shareholder’s prejudice claim and a derivative claim; first and foremost the company brings the derivative claim, not the shareholder. Consequently, if the claim succeeds the shareholder will not receive any direct compensation – this instead will be due to the company.

As you might expect, derivative claims are difficult to bring. There are strict statutory guidelines and the permission of the Court must be sought in all circumstances. The test to satisfy is that the claimant has a good prima facia case. Consequently, derivative claims are rare unless the evidence against the director is overwhelming, or alternatively, following an appropriate order of the Court in a shareholders prejudice claim. They remain, however, a useful tool for shareholders and a reminder to directors that they are not untouchable.

Are you a director of a limited company and would like advice on your legal obligations? Or are you a shareholder and feel that a director’s actions have prejudiced your shareholding? If so, our experienced company disputes solicitors can help you. Call 0800 988 7756 to discuss and receive an initial costs estimate.

Recently Added

Connor’s half marathon success for SADS UK

Connor’s half marathon success for SADS UK

Trainee Solicitor, Connor King and his sister-in-law, Abi, ran a half marathon in November for charity. He took on the Conwy Half Marathon on 19 November, raising money to support research into Sudden Arrhythmic/Adult Death Syndrome UK (SADS UK). Fundraising for this...

We speak your language

We speak your language

At Levi Solicitors LLP, understanding your needs and queries is paramount. We are proud that we can offer staff who can speak many different languages. So, if you’re not comfortable speaking in English, we may be able to offer you a solicitor who can speak to you in...

What our clients say