The following Dispute Resolution practice note produced in partnership with Mark Hubbard of New Square Chambers provides comprehensive and up to date legal information covering:
A guide to specific terminology used in this Practice Note is provided—see below.
A derivative claim (or derivative action) is a claim brought or continued by a shareholder on behalf of the company in relation to a breach of duty by a director. It will usually be used in circumstances when the majority wrongfully prevent the company bringing or proceeding with such a claim itself. The claim is brought for the benefit of the company. This procedure is necessary as a director owes duties to the company and not to the shareholders.
The derivative claim existed at common law for many years, based on the 'fraud on the minority' exception to the rule of majority control identified in Foss v Harbottle—see Lensi v Westrip at paras –. It is now very largely replaced, by the new provisions of Part 11 of Companies Act 2006 (CA 2006) (as applicable to England and Wales and Northern Ireland, CA 2006, ss 260–264).
However, note that the common law derivative claim continues to exist in some circumstances not covered by CA 2006, Pt 11, such as a double or multiple derivative claim, or in relation to that by a Limited Liability Partnership (LLP). For further information, see below.
Otherwise, for guidance on:
the scope of a director’s duties, see Practice
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Judicial review—time limits and the pre-action protocolWhen considering whether and how to bring a claim for judicial review, the first step is to consider whether judicial review is be an appropriate means of addressing the issues raised by the case at hand. For further guidance, see Practice Note:
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