Derivative Proceedings in a Brave New World for Company Management and Shareholders

On Oct 1, 2007 a significant portion of the Companies Act 2006 (the Act) became operative. Included in the provisions put into force on that day was Pt 11 of the Act, which provides for a derivative proceedings regime. Part 11 was enacted in response to the recommendations of both the Law Commission...

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Bibliographic Details
Published in:Journal of business law 2010-04 (3), p.151
Main Authors: Keay, Andrew, Loughrey, Joan
Format: Article
Language:English
Subjects:
Corporate governance
Court decisions
Legislation
Shareholder derivative suits
Stockholders
Online Access:Get full text
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Summary:On Oct 1, 2007 a significant portion of the Companies Act 2006 (the Act) became operative. Included in the provisions put into force on that day was Pt 11 of the Act, which provides for a derivative proceedings regime. Part 11 was enacted in response to the recommendations of both the Law Commission and the Scottish Law Commission. The regime effectively overtakes the common law position which required a shareholder who wished to bring proceedings to enforce the rights of his or her company to establish an exception to the rule in Foss v Harbottle. Shareholders were left to instituting a derivative action on behalf of their company, and most often shareholders, in bringing such actions, would rely on the "fraud on the minority" exception. Although permission to proceed has only been granted in two cases so far, given the facts of the cases and the nature of the wrongs alleged to date this is probably the correct outcome.
ISSN:0021-9460