Part implementation, on 1st October 2007, of the Companies Act 2006 (‘the 2006 Act’) has given a statutory footing to derivative claims, previously available to shareholders only under the common law.
A derivative claim is made by a shareholder on behalf of, and for the benefit of, the company and typically arises following breach of duty by a director.
Such a claim will, if successful, result in a remedy being provided to the company itself, rather than to the shareholder bringing the claim.
Unfair prejudice
Previously shareholders were able to bring claims against directors, under Section 459 of the Companies Act 1995, where they believed that there was or had been unfair prejudice in relation to their interests.
The provisions relating to unfair prejudice claims were incorporated into the 2006 Act (Section 994 onwards) and implemented on 1st October 2007.
Which claim?
It is likely that the majority of shareholders, when advised of the options, will choose to present a Section 994 claim, rather than a derivative claim:
• The costs involved in bringing a Section 994 claim are much lower than those in a derivative claim.
• It is less likely that a shareholder will wish to take the financial risks involved in bringing a derivative claim, when it is the company that will receive the benefit of a successful claim, rather than the shareholder himself.
• In bringing a Section 994 claim, the claimant does not need to show that he is acting in good faith.
• More acts or omissions constitute unfair prejudice than would permit a derivative claim to be brought.
• Derivative claims are likely to prove more useful in the case of large public companies, where more money and resources are available and where more may be at stake.
Other changes under the 2006 Act
The Act has widened the class of those able to bring derivative claims so that they may now be brought, not only by registered shareholders, but also by persons to whom shares in the company have been transferred or transmitted by operation of law.
Further, It is now neither necessary for the wrongdoer to be in control of the company nor for the breach of duty (including negligence) to benefit the wrongdoer.
The Act also allows, in limited circumstances, claims against non-directors.
