Derivative claims

Our lawyers have strong practical experience of successfully assisting shareholders with disputes and claims against company directors.

One of the potential options is legally pursuing what is known as a derivative claim.

What is a derivative claim?

Derivative claims are statutory claims under section 260 of the Companies Act made against directors for breach of statutory and/or common law director duties. Claims can arise in a wide variety of ways but commonly will be based on negligence, breach of trust, a conflict of interest or where the director has personally benefitted for example by unlawfully diverting business away from the company to another business where the director directly or indirectly benefits.

A derivative claim must be made by the company itself and not shareholders.

As directors generally have day to day control of running a company and derivative claims are made against directors by the company, such claims are unusual in that they are instigated by shareholder action in the name of the company.

How to start a derivative claim

Specific permission is required from the court to pursue a derivative claim after the claim has been issued at court. The court will need to decide whether the claim is in the best interests of the company and made in good faith or whether the motive for bringing the claim is based on other shareholder motives.

The ability to convince the court to allow the claim to proceed is often difficult. This is because such claims are generally made where the directors are not co-operating. As the directors have the key information which may be needed to demonstrate either negligence, breach of directors duties or breach of trust, proving the claim has sufficient merit is difficult.

It is important to have good lawyers in your corner if you are considering this course of action. We are highly experienced with derivative claims so would be happy to discuss the merits and tactics with you.

Court orders as a result of derivative claims

As with unfair prejudice claims, where a claim proceeds to trial and succeeds the court has wide equitable discretion as to the remedy ordered. It is important to remember that remedies that do not involve the winding up of the company and which require financial payment or repayment of money by directors held liable, will mean money being paid or repaid to the company, not the shareholders who have instigated the claim.

Remedies we have seen in actions we have advised on include :-

• an award to the company of damages payable by the director who acted unlawfuly.
• director removed from office and his position as an employee.
• an order whereby the minority shareholders who start a derivative claim get their legal costs paid by the company, after the company has recovers monies from the director
• an injunction against a director against further unlawful action.
• transactions which have personally benefitted a director where he/she had a conflict of interest, being set aside.