Article

Drawing boundaries between derivative claims and unfairly prejudicial petitions

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Abstract

Purpose - To consider whether the courts, in addressing petitions under section 994 of the Companies Act, the unfairly prejudicial remedy, have undermined the rule in the case of Foss versus Harbottle. Design/methodology/approach - The case of Foss versus Harbottle focused on the prohibition on the recovery of reflective loss, and the standing requirements with respect to derivative claims by allowing a combination of corporate and personal claims. Discusses the implications for the case of Gamlestaden Fastigheter AB versus Baltic Partners Ltd, that a cause of action vested in a company could be prosecuted to judgment on an unfairly prejudicial petition and that the court could order that damages be paid by wrongdoing directors to the company. Findings - The case of Gamlestaden Fastigheter AB versus Baltic Partners Ltd indicated that the courts are quite restrictive in their approach and that this should continue to be the position, especially in the light of the statutory derivative claim now provided for by Companies Act 2006, Part 11. Originality/value - Clarifies some of the confusion that might have arisen in this implementation of the Companies Act.

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... Finally, in relation to the subject of this section of the paper it is perhaps worth considering, albeit briefly because of space constraints, 34 whether, and leaving aside the proposal just articulated above, the present legislation should be broadened to allow so-called " multiple derivative actions " (sometimes referred to as " double derivative actions " ) to be brought [2008] HKCFA 63; (2008) 11 HKCFAR 370; [2009] 4 HKC 381; [2009] 2 BCLC 82 within the ambit of the statute. A " multiple-derivative " action is a derivative action that is entitled to be brought by minority shareholders of a parent company for a breach of duty owed to a direct or indirect subsidiary, certainly where control of the subsidiary is not independent of the parent company's board. ...
... For instance, see Franbar Holdings Ltd v Patel [2008] EWHC 1534 (Ch); [2008] BCC 885 where the deputy judge linked wrongdoer control and ratification. For further discussion, see A. Keay and J. Loughrey, " An assessment of the present state of statutory derivative proceedings " in J. Loughrey (ed), The better approach would be to remove any reference to ratification in the statutory regime. ...
... For instance, see Franbar Holdings Ltd v Patel [2008] EWHC 1534 (Ch); [2008] BCC 885 where the deputy judge linked wrongdoer control and ratification. For further discussion, see A. Keay and J. Loughrey, " An assessment of the present state of statutory derivative proceedings " in J. Loughrey (ed), The better approach would be to remove any reference to ratification in the statutory regime. ...
Article
In October 2007 a statutory scheme, designed to address the issue of derivative actions, came into force. The scheme provided that shareholders wishing to continue (or commence) derivative proceedings in relation to wrongs committed against their company had to obtain the permission/leave of the court. In the subsequent eight years there have been few derivative actions instituted by shareholders and only a small percentage of actions commenced have succeeded in obtaining court permission/leave to proceed. This article undertakes an analytical review of the statutory scheme and identifies reasons why there are so few proceedings in the UK, and more broadly it examines and evaluates the derivative action scheme itself. The article considers whether the statutory scheme is too narrow and explores some changes that might be made to it in order to make it more accessible and more effective.
... 92 Hannigan advocated that Cutland et all are exceptional cases in nature and does not forge a general wider scope for the unfair prejudice petition. 93 The right to seek relief under unfair prejudice petition is conferred upon only members of the company under section 994. However, anon-member to whom shares in a company have been transferred or transmitted by operation of law has the right to petition. ...
Article
A company shareholder should have no difficulty in commencing a claim to recover the loss suffered due to a wrong done to their personal property. The right to the protection of property is a fundamental human right in English law. A wronged person whose property right is infringed will have the right to commence legal proceeding against wrongdoers. However, in the company context the exercise of a shareholder’s right of action may conflict with the company’s right of action where the loss sought is reflective. The English company law’s arrangement has been that a shareholder’s action is exceptional beyond which it will routinely be barred through the principle of the ‘no reflective loss’. Where company’s loss and the shareholders’ loss are reflectively linked, then the company’s action prevails the shareholder action. This paper would argue that the two actions should swap places in law. Shareholder action should be recognised as a general principle of law while it is barred exceptionally in circumstances where stronger policy considerations such as the observation of the corporate autonomy are to be prioritised.
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