What is a Derivative Claim and How Can Shareholders Bring One Against Directors in the UK?

Question from bam, What is a Derivative Claim and How Can Shareholders Bring One Against Directors in the UK?

Answer from AI:

A derivative claim is a legal action brought by a shareholder on behalf of the company against its directors. This typically happens when the directors are alleged to have breached their duties to the company, often in cases of serious misconduct.

What are the Requirements for a Derivative Claim?

In the UK, the Companies Act 2006 governs derivative claims. According to Section 260, a derivative claim can only be brought in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.

The claimant must be a member of the company, and the cause of action must be vested in the company. The court has discretion to grant permission for the claim to proceed, and will consider several factors, including:

• Whether a person acting in accordance with the duty to promote the success of the company would seek to continue the claim
• The importance that a person acting in accordance with that duty would attach to continuing it
• The likelihood of authorization of the act or omission in question
• The nature of the alleged harm done to the company and any benefit received by the director

What are the Procedural Hurdles?

Bringing a derivative claim is not straightforward. There are several procedural hurdles to overcome:

1. The claimant must first apply to the court for permission to continue the derivative claim. This is to prevent frivolous or vexatious claims.
2. The court will then consider whether a prima facie case has been established. If it has, the court will proceed to a second stage where it will consider whether to grant permission for the claim to proceed.
3. If permission is granted, the claimant can then proceed with the derivative claim on behalf of the company.

When is Legal Advice Necessary?

Given the complexity of derivative claims, it is strongly recommended that shareholders seek legal advice before proceeding. A legal professional can help to assess the strength of the case, navigate the procedural hurdles, and provide guidance on the potential risks and rewards.

Remember, this information is a general guide and not a substitute for professional legal advice. Always consult with a legal professional for personalized advice.