Introduction
Minority shareholders in corporations usually possess few instruments to defend themselves from harmful or negligent behavior by directors or other corporation’s chief insiders. One of the remedies is the derivative lawsuit implying an action initiated by a shareholder on behalf of an organization because of actual or potential damage caused by a director’s acts or inaction. This paper aims to discuss the laws and court cases regulating shareholder derivative lawsuits in the United Kingdom and examine if they have promoted business cultural responsibility.
Laws
Historically, it has been assumed that the UK stance concerning derivative lawsuits and overall minority protection is definitely rigid. Significant progress in the legislation regarding minority shareholders was made by Foss v Harbottle’s decision that became the leading principles of modern corporative law ultimately. According to the doctrine stated in this principle, a minority shareholder cannot pursue harm inflicted to a company or lodge about any internal irregularities (Akinyera 7). In any action wrong to a company, the appropriate plaintiff is the company itself, namely, the board of directors (Akinyera 7). Exceptions to the rule in Foss v Harbottle include “derivative action” that shareholders can bring on behalf of the company if the action or omission of the director caused actual or potential losses.
Since Foss v Harbottle left the minority in undefended conditions, new statutory provisions have arisen, ensuring some protection for minority stakeholders. The most famous security is the Companies Act 2006 providing a novel procedure, according to which shareholders can initiate a derivative claim regarding directors when the company does not tend to defend its right (Greco 10). The claimant no longer needs to demonstrate that the alleged action is a “fraud on the minority,” assuming that a suit can be made against negligence without proving that the director, as a defendant, has earned personally. Despite the notable shift from the complicated pre-2006 position, the first cases displayed that the courts remained conservative as it was in the case Mission Capital Plc v Sinclair & Anor (2008) (Pendell). In particular, although the initial stage was passed relatively ease, the court, at its own discretion, refused to satisfy the claim.
Work Cited
Akinyera, Busola. “A Comparison of the UK and US Legal Approaches to Derivative Action.” University of West London, 2016.
Greco, Elisa. “Shareholders’ Remedies: The Derivative Action in the UK, the USA, and Italy.” Department of Economics and Finance Chair of Law and Economics, 2018.
Pendell, Guy. “New Derivative Claim Fails to Take off.” CMS Law-Now, 2008, Web.