Shareholder Derivative Action - Derivative Claims

A shareholder derivative action, also known as a derivative claim, is a legal action brought by the shareholders of a company. Bringing a derivative action usually occurs when the company’s management or directors of the company fail to take legal action against the third party, despite it causing harm to the corporation and affecting the success of the company.

Company Directors are legally bound by common law and statute law under the Companies Act 2006 to ensure they carry out certain directors’ duties and promote the success of a company.

In derivative proceedings, the shareholder acts as a representative on behalf of the company to enforce the company’s rights.

The minority shareholder essentially initiates the derivative action on behalf of the company. They do not personally benefit from the derivative claim, but instead seek to recover damages or other remedies for the company.

Shareholder derivative actions are common in cases involving corporate fraud, breach of duty by directors or officers, breach of trust, mismanagement, or other wrongdoing that harms the corporation.

The purpose of such actions is to hold accountable those responsible for the harm caused to the company and to recover losses on its behalf.

It is important to note that derivative actions are subject to various legal requirements and restrictions to prevent abuse or frivolous lawsuits.

The ultimate goal is to protect the company’s interests and ensure that its rights are upheld. At Expert Commercial Law we can put you in touch with a legal expert in shareholder derivative action, please get in touch to find out more.

Causes of Shareholder Derivative Action

There are a number of things that can cause a shareholder derivative action, including:

Breach of fiduciary duty

This is the most common cause of shareholder derivative actions. A violation of fiduciary duty occurs when company directors act in their own interests instead of the interests of the company. This can include issues like self-dealing, insider trading, or approving contracts that are not in the best interests of the company.

Mismanagement

This occurs when the directors or officers of a corporation fail to manage the corporation in a prudent manner. This can include making bad investments, approving unnecessary expenses, conflicts of interest, or failing to take steps to protect the company from liability.

Fraudulent or illegal conduct

This occurs when the directors or officers of a company engage in fraudulent acts, omissions or illegal activity that harms the corporation. This can include falsifying financial records, making false statements to shareholders, or engaging in insider trading.

If you believe that a shareholder derivative action is warranted, you should consult with a solicitor to discuss your options.

How to bring Shareholder Derivative Action

Bringing a derivative claim means the shareholder must first seek permission to bring the claim. Permission from the court will only be granted if it is satisfied that the shareholder has a prima facie case, that the action is in the best interests of the company, and that the shareholder is acting in good faith.

If the court grants permission, the shareholder will then be able to proceed with the claim. The claim will be conducted in the name of the company. However the shareholder will be responsible for managing the case and paying the legal fees.

If the shareholder is successful in the case, the damages awarded will go to the company, not to the shareholder. However, the shareholder may be entitled to reimbursement of their legal fees.

Shareholder derivative actions are an important tool for protecting the interests of companies and their shareholders. They can help to ensure that corporate insiders are held accountable for their actions and that businesses are managed in the best interests of all shareholders.

How can Expert Commercial Law assist?

Our panel of shareholder derivative action solicitors possess extensive experience and can assist parties in complex disputes.

Our panel firms provide guidance throughout the process and can help protect their client’s rights and interests. They can also help evaluate the strength of the case and advise on the best course of action.

Our solicitors can also help with a number of other commercial claims, such as partnership disputes, breach of contract and CCJ removal.

Please note we are not a firm of solicitors; however, we maintain a panel of trusted and regulated legal experts. If you contact us in relation to a commercial law case, we will pass your case on to a panel firm in return for a fee from our panel firms. We will never charge you for passing on your case to a panel firm.

Please get in touch with us today using our enquiry form below, and a member of our team will be in touch with you.