HomeFWJ TakeawayRisks that Directors Face: Statutory Derivative Claims

A Statutory Derivative Claimant (or “Derivative Claim”) is brought by Shareholders under Part 11 of the Companies Act 2006 in respect of one of the following circumstances:

  • In respect of a cause of action vested in the Company; or
  • Seeking relief on behalf of the Company.

Conventionally, where a Shareholder or group of shareholders wish to deal with one or more Directors or require that the Directors ensure the Company takes such proceedings, the majority rule of shareholders will ensure that such steps are taken within the terms of the Company’s Articles of Association, Company law and any Shareholders’ Agreement.

Shareholder resolutions can including the dismissal of a Director (or more than one), the proposal to take certain legal proceedings, any relevant requirements to amend the Company’s Articles of Association and, if one exists, any Shareholders Agreement.

However, these powers are only normally exercisable by the majority of shareholders and where the majority and the minority are in disagreement, it is very common for the minority to feel discriminated against in respect of all decisions made by the Company.

In such circumstances, minority shareholders can seek the Court’s assistance and, if they feel that either a Director (past or present) or a third party should repay monies to the company or is otherwise liable to it, then the Court if satisfied may support such a claim.  Alternatively, such proceedings can be instituted to pursue a Director who may have removed money or assets from the Company (even one who is currently appointed).

Please see our booklets entitled “How to protect minority shareholder interests”, “What happens when Shareholders/Directors fall out?” and “What can Shareholders do to control Directors?” for more information on this subject.

The process of a shareholder (or group of shareholders) taking such proceedings is complicated and not inexpensive.  

The applicant will usually present the claim against the Directors and the company and there will be initial evidence and a hearing as to whether there is a strong case.  If the claim succeeds at this stage, then the Company may become claimant and the other parties will be authorised to use Company funds to continue the legal proceedings against the remaining Defendant(s).

If such proceedings are successful, this can be extremely damaging to Defendant Directors faced with such proceedings (as with any other claim) and they will not only be liable for any losses claimed and accepted by the Court, but they may also be liable for interest and legal costs personally.

Contact us in confidence